Manufacturing, Merchandising and Service

A manufacturer takes a raw material such as steel and turns it into a finished product, such as a car. A merchandiser, such as an automobile dealer or a clothing retailer, buys finished goods from a manufacturer and sells them to consumers. A service company does not actually manufacture anything, rather, it performs a service. For example, an advertising agency develops a marketing strategy for the automakers and implements it by, among other things, buying commercial time on television.

Accounting firms, banks, hospitals, hotels, and utilities are other examples of com­panies that provide a service.

Certain types of businesses are more susceptible to swings in the economy than others. Manufacturers tend to do as well as the economy. That means that their successes are cyclical. As a result, their stocks sell for a lower price than companies that are less affected by the economy. Another economic variable that affects big-ticket manufacturers such as automakers and homebuilders is the level of interest rates. Interest rates are the costs of borrowing money for a variety of time periods. As interest rates rise, automakers and homebuilders tend to suffer slower sales. The reason: people usually need to borrow money to buy their goods.

To a lesser extent, retailers are impacted by a sluggish economy. If, for example, the general population is lacking confidence in the future, then consumers will be less likely to spend a lot of money during the holiday season. In addition, retailers slash prices when business is slow. Although this stimulates sales, it cuts profitability. Service companies tend to weather changes in the economy the best. Certainly, hospitals see just as many sick people when the economy is slow as when it is booming. Entertainment companies such as Disney tend to sell just as many movie tickets when the economy is slow.

Date: 2015-01-02; view: 805