Steps Involved in Strategic Planning
With any recession in business activity, luxury goods lose sales volume much more quickly than do necessities. Luxury items carry a much higher markup than necessities. In hard times the demand for diamonds decreases very rapidly, while the demand for foodstuffs is only slightly affected. Diamonds show a much higher percentage of profit than: foodstuffs, however, and thus the market is able to retain financial stability if properly managed.
Novelty items have a relatively short-lived market. This is typified by many articles of feminine adornment such as costume jewelry, handbags, and hats. Staple items enjoy a relatively stable market with few fluctuations and relatively long life. Men’s clothing, canned soups, and nuts and bolts are all staples. In contrast with the marketing equilibrium of the producer of staples, the novelty manufacturer must be on the lookout constantly for new items as the older items lose their markets.
Items purchased by industry, such as machine tools, hoists, trucks, and structural steel shapes, are manufacturers goods. Many of these items are capital goods; that is, they are not quickly consumed but are used over a long period of time to aid in the production of other goods. While such items are usually bought after careful analysis of the needs of the business and the relative merits of various products, emotion is sometimes a basis for the purchase of new equipment whose economic justification has not been clearly proved. Items purchased by the consumer, ranging from foodstuffs to electrical appliances, are classified as consumers goods. More advertising is directed at the consumer than at the manufacturer. Consumers’ purchases are usually made on a more emotional basis than manufacturers purchases. A mink coat can seldom be justified by careful analysis of the needs of the individual. Food, however, is bought because of its essentiality.
The attitude of the purchaser is the principal determinant between shopping and convenience goods. Usually, high-priced items such as electrical appliances and furniture are not bought on the spur of the moment but only after careful comparison of the types, qualities, and prices of the goods available. Shopping goods usually, but not always, include items which are capital expenditures to some extent. Convenience goods are those which the purchaser buys without careful comparison. The time and place of purchase are dictated by convenience. The article is usually standard and with little price variation. Such items include cigarettes, candy, chewing gum, and magazines.
Perishable products must be sold quickly to avoid spoilage, or they must be processed for preservation. Style obsolescence is similar in its requirement for quick sale. Fragile products that are difficult to transport must carry a higher markup to compensate for breakage of some portion of the total stock or output. The difficulties in the manufacture of some items, leading to a high percentage of rejects not salable at the regular price, also require that a higher markup be obtained.