Consumer Goods vs Capital Goods - What’s the Difference?

What are Consumer Goods?

Consumer goods, like the name suggests, are tangible goods that consumers buy and use. These are often called final goods, since they are meant to be used by consumers and do not serve another purpose. These goods are not contributing to the production of another good and fall into a vast range of product categories. From personal care to food (and beverages) to automobiles, consumer goods are present in all areas of life, satisfying the wants and needs of consumers. Keep in mind that consumers normally do not buy capital goods.

What are Capital Goods?

Capital goods are tangible assets that are used by manufacturers to produce consumer goods. Often referred to as intermediate goods, they play a role in the production of a final good that consumers then buy and use. Capital goods include equipment, real estate, machinery, and buildings. Manufacturers, businesses and companies buy capital goods to produce other goods. Keep in mind that capital goods are not necessarily raw materials but rather human-made goods that are bought and sold between businesses (B2B.)

The Difference between Consumer and Capital Goods

The difference between consumer and capital goods lies in who interacts with them. Consumer goods are final goods that consumers buy and use, and typically do not contribute to the production of another good in any way. On the flip side, capital goods do exactly that: They are a part of the production process of a final good. Although the finished product is used by consumers, the individual capital goods that are needed for its production are not.

But can a good be both a capital and a consumer good? The answer is yes. As an example, a laptop can be a consumer good if a consumer buys it for personal use. That same laptop, if used by a business’ employees for work would be considered a capital good. The key takeaway here is that the difference lies in how and by whom the good is used.

Differentiators:

Who is using the good: If an individual uses the good, then it's likely a consumer good. If a business uses the item, it is a capital good.

How it is being used: Determine if the good is being used for commercial or personal reasons.

Quantity: If the good is used in small amounts, it is likely a consumer good. Larger purchases and bigger quantities of the good indicate that it could be a capital good.

Marketing

Companies that offer capital goods usually market their goods through business-to-business (B2B) strategies, while companies in the consumer goods industries rely on business-to-customer (B2C) tactics. B2B marketing is based on in-depth research and often targets pre-existing clients. B2C marketing relies on broader consumer buying patterns and aims to connect with the right audiences through publicly available channels.

Price

Pricing strategies vary between capital goods and consumer goods companies. Suppliers, who directly react to the demand of consumers, determine the price of consumer goods. Consumer goods directly satisfy the needs of the people who purchase them, so they have direct demand. On the flip side, capital goods satisfy the consumer needs indirectly, so they have derived demand.

Reviewing the points above should allow you to clearly differentiate between these two types of goods. Consumer goods are meant for final consumption, while capital goods are concerned with final investment.

Why We Focus on Consumer Goods

There are plenty of loan options for capital goods, but consumer goods brands often face restraints when seeking external funding. Due to the consumer packaged goods industry's higher level of uncertainty, lenders are often hesitant to work with direct-to-consumer (D2C) businesses.

We have made it our mission to work with CPG brands to fill the gap and provide emerging businesses with the capital they need to fuel their growth. Working with a partner that specializes in consumer goods can help you remove financial constraints with capital specifically tailored to the needs of consumer goods brands. We take pride in helping brands scale as they grow, with flexible capital solutions, industry insights and more. You can learn more about our working capital loans here.