2 Theoretical Background
2.3 Consumer Goods
In this section, consumer goods as the object of this investigation are introduced. For this purpose, the term consumer goods is defined, consumer goods categories are developed, and the importance of the consumer goods industry for the overall economy is spotlighted.
2.3.1 Defining Consumer Goods
In manufacturing industries, investment goods, consumer goods, and intermediate goods have to be differentiated. Investment goods are bought and used by companies as a factor of production. They are often highly individual and complex products purchased by professional buying centers through long-lasting and close relationships with the suppliers.
Consumer goods, on the other hand, are
products developed for and purchased by the average consumer to satisfy their human wants (Tomczak et al. 2003, p. 1161).
They can be characterized as rather standardized and less complex products bought by numerous individuals only loosely connected to the producing company (Backhaus & Voeth 2004, p. 8 f.; Hofbauer et al. 2009, p. 39). Consumer goods and investment goods are
7 DfE = Design for the Environment.
Consumer Goods 21
further defined in Table 1. Finally, intermediate goods are used as input for the production of both investment and consumer goods.
Table 1: Definition of Investment Goods and Consumer Goods
(based on Backhaus & Voeth 2004, p. 8 f.; Hofbauer et al. 2009, p. 39) Characteristic Investment Goods Consumer Goods Quantity and type
of demand
few; derivative demand by mostly larger companies or organizations
many; original demand by consumers or small companies
Type of supply management
professionally, by multiple persons
(buying center) by individuals
Role of product individualization
high; supplier has to accommodate to
individual customer requirements low; rather standardized products Intensity of buyer
supplier relationship
close; often maintained for several years,
often joint product development loose; anonymous relationship Systemic nature of
products
high; often composed of several
components; complex systems low, predominantly single components
On their longevity, durable and non-durable consumer goods are to be distinguished (Tomczak et al. 2003, p. 1161). Durable consumer goods can be used multiple times and are bought less often. They typically are of high value. Consumers demonstrate strong involvement and are engaged in an intensive information search before purchasing durable consumer goods. Existing alternatives are consciously evaluated and purchasing advice or services are often used (Placzek 2007, p. 110). Typical examples of durable consumer goods are consumer electronics and bicycles. Non-durable consumer goods, on the other hand, can only be used one or few times. They are typically of low value and bought with a high frequency. Since involvement is low, consumers normally do not use purchasing advice and seldom search for information on the product features before purchasing. Often purchasing decisions are completely impulsive (Placzek 2007, p. 110). Typical examples of non-durable consumer goods comprise food and cleaning agents. However, a clear classification of products is not always possible and may even depend on the behavior of the individual consumer. Thus, Figure 11 illustrates consumer goods as a continuum with durable and non-durable as its poles.
Figure 11: Distinction of Durable and Non-Durable Consumer Goods (adapted from Placzek 2007, p. 111)
From a sales perspective, consumer goods can also be distinguished by their turnover ratio into Fast Moving Consumer Goods (FMCG) and Slow Moving Consumer Goods (SMCG).8 In fact, this classification is often used as a synonym for non-durable and durable consumer goods (Tomczak et al. 2003, p. 1161; Moretti & Murck 2014, p. 6). Again, an explicit product classification is difficult and contextual. Taking consumer electronics as an example, most authors define them as being SMCG (e.g. Kern 2010, p. 4). However, some rather consider them being FMCG (e.g. Meyr & Stadtler 2015, p. 61). For this dissertation, products are considered as being durable or slow moving if they can be used over a certain period without being expended.
2.3.2 Categorization of Consumer Goods
For a detailed analysis of product sustainability in the consumer goods industry, a more in-depth differentiation of consumer goods is deemed appropriate. Kern (2010, p. 4) differentiates 51 types of consumer goods. However, his typology is not deduced comprehensible and does not include exemplary products. As a result, some categories appear to be not definitive (e.g. giftware) or seem to overlap (e.g. perfume and fragrances).
Another highly detailed categorization of consumer goods is provided through the consumer basket developed for calculating the German consumer price index (Destatis 2013). It also contains the average consumers’ spending as well as exemplary products for each category. However, most categories are composed of consumer goods as well as related services and therefore would have to be split up. Finally, a group of categorizations of goods focuses on economic activities (e.g. Destatis 2008; Eurostat 2008). Hence, consumer goods, intermediate goods, and investment goods are summed up on their production technology and economic sector.
8 FMCG are also often referred to as consumer packaged goods (CPG) (Schilling 2012, p. 20).
Durable consumer goods
Consumer Goods 23
All extant categorizations are helpful, but none is suitable in its original form. Consequently, a categorization is developed for the current dissertation building primarily on the consumer basket (Destatis 2013) and some aspects of Kern’s categories (2010, p. 4). It is mapped in Table 2 including exemplary products and the average share of consumers’ spending for each category. Food was excluded since this dissertation focuses on non-food consumer goods (this restriction is substantiated in Section 5.1).
Table 2: Categorization of Non-Food Consumer Goods
Category Exemplary Products Breakdown of
Spending (%)
Apparel suit, dress, underwear, rompers, rain coat 19.4
Body care products dental floss, shampoo, diaper, lipstick 6.7 Carpets and home textiles carpet, laminate, blanket, towel, curtain 2.9
Consumer electronics digital camera, TV set, loudspeaker 4.0
Domestic appliances fridge, coffee maker, hair blower, washer 5.3
Footwear athletic shoes, pumps, slippers, insole 4.6
Furniture and lighting kitchenette, wardrobe, couch, table lamp 9.5 Home and garden commodities wallpaper, paint, bulb, building material 6.1 Home and garden tools lawn mower, screwdriver, drill, rake 3.0 Household articles tumbler, tableware, ironing board, bin 1.9 Household commodities detergent, baking paper, cleaning agent 2.8 Image and sound carriers blank disk, photo album, Blu-ray disk 1.5 IT and communication devices computer, printer, software, calculator 4.1
Jewelry and watches necklace, wedding ring, alarm clock 2.0
Leisure and sports equipment bicycle, racket, musical instrument, tent 2.7 Medical and therapeutic products glasses, medicine, hot-water bag 10.8 Personal items umbrella, baby stroller, briefcase, lighter 1.2
Printed products book, newspaper, calendar, postcard 7.6
Stationery ball pen, crayon, envelope, stapler 1.0
Toys doll, parlor game, building blocks 3.1
The products included in the categories account for about a fifth of the average German consumers’ spending. They are manufactured by a variety of companies representing a substantial share of the overall economy. The remaining consumers’ spending comprises the costs for food, habitation, mobility, healthcare, insurance, and other services.
2.3.4 Consumer Goods Industry
Multinational consumer electronics companies like Samsung, Apple, and Sony as well as FMCG behemoths like Nestlé, Procter & Gamble, and Unilever shape the public perception of the consumer goods industry (Deloitte 2015, p. 10).9 The German consumer goods industry features some global players as well (e.g. Henkel, Adidas, Dr. Oetker, and Maxingvest).10 Despite containing these internationally recognized companies with multiple billions of annual turnover, the German consumer goods industry as a whole is characterized by a majority of small and medium-sized enterprises (SME) (Kern 2010, p. 16;
Litchfield 2016). Kern calculates the average consumer goods company in Germany to achieve an annual turnover of EUR 28 million and to employ 110 people (2010, p. 16). Thus, most companies fall into the category of SME as defined by the European Commission (2015, p. 10).11 However, large differences between the individual branches exist. The twelve German tobacco companies on average generate around EUR 500 million and employ more than 350 people. The much higher number of textile or publishing companies turn over less than EUR 20 million per year and employ less than 100 people on average (Kern 2010, p. 16).
Figure 12: Importance of Consumer Goods Industry for German Economy (calculated based on data from Destatis 2016a, 2016b)
The consumer goods industry as a whole is of high relevance for the German economy (see Figure 12). In 2014, these companies employed next to one million people and produced and sold durable and non-durable goods worth nearly EUR 300 billion. This combined turnover comprises about a fifth of the overall manufacturing industries. Also, the demand for consumer goods to a large degree determines the demand for intermediate and
9 Net Sales in 2013 (according to Deloitte 2015, p. 10): Samsung ($210bn), Apple ($171bn), Sony ($67bn), Nestlé ($99bn), Procter & Gamble ($83bn), Unilever ($66bn).
10 Net Sales in 2013 (according to Deloitte 2015, p. 11 f.): Henkel ($22bn), Adidas ($19bn), Dr. Oetker ($14bn), Maxingvest ($13bn).
11 A company is considered being an SME if it has a staff headcount of less than 250 persons and either an annual turnover of less than EUR 50 million or an annual balance sheet total of less than EUR 43 million.
77%
23%
Investment Goods EUR 731bn Intermediate Goods
EUR 545bn
Gross Value Added Manufacturing Industries Consumer Goods Industry
EUR 249bn
777,000 Turnover
Non-Durable Goods
EUR 38bn
167,000 Non-Durable Goods
Durable Goods
Durable Goods
Employees
Turn-over
[2014]
Summary of Theoretical Background 25
investment goods (Kern 2010, p. 6). This holds true due to the large supply networks unfolding upstream from the consumer goods companies (Schilling 2012, p. 21 f.).
Considering, for example, the production of plastics products like toys, intermediate goods like synthetic granules are needed as inputs and investment goods like injection molding machines are necessary to process the intermediate goods. The growth or decline of people’s propensity to consume therefore immediately reflects on other manufacturing industries.