Buy: What it Means, Consumer Versus Business, Types

What Is Buy?

Buy is a term used to describe the purchase or acquisition of an item or service that's typically paid for via an exchange of money or another asset. When buyers look to acquire something of value, they assign a monetary value to that product or service.

Understanding Buy

A buy may be associated with small purchases, such as purchasing clothing at a retail store or a corporation buying a new manufacturing facility. Also, there are various types of buying examples in the financial markets, including the purchase of real estate and equities.

Although a buyer may assign a value to what they want to acquire, that value is a perceived value. In other words, the value to which a buyer assigns is relative and can vary between other interested parties.

In some cases, a buyer may purchase an item at a premium, meaning the price paid is above its original value. However, some items are also purchased at a discount, meaning the buyer's perceived value of the item is less than its original estimated value.

For example, a buyer may purchase an old, classic automobile, which is considered rare, resulting in a premium paid for the car. Conversely, a buyer may offer less money than the car's estimated value if the car was in poor condition.

Consumer Buying

Consumer buying often involves purchasing consumer goods, which are finished goods purchased at retail stores or online. The types of goods that consumers buy can include the following:

• Food
• Clothing
• Jewelry
• Furniture
• Electronics
• Books and magazines
• Personal hygiene products
• Household cleaning products
• Tools and other outdoor equipment

Consumer buying behavior—often called consumer spending—can be split into categories. Consumer goods can be either durable or non-durable goods. Durable goods typically have a life span of more than three years and include appliances and automobiles. Non-durable goods are typically consumed or used immediately. Examples of non-durables include food and clothing.

Consumer buying behavior can also be broken down into whether the purchases are for need or want expenses. Need-based purchases are called consumer staples and include food, paper towels, toilet paper, and other products that are needed on a day-to-day basis.

Want-based purchases are considered non-essential and categorized as consumer discretionary expenses. Examples of consumer discretionary spending include the purchase of an iPhone or a vacation. Consumer buying also includes the purchase of services, such as a tax preparer or a haircut.

Business Buying

Businesses and corporations also buy goods and services, which can be categorized as long-term or short-term purchases.

Capital expenditures (CAPEX) — involve the purchase of large items that typically benefit the long-term financial health of a company. Capital expenditures can show how well a company is investing in its business, which can help generate revenue and profit in the future. These might include the purchase of:

• Equipment and machinery
• Property, buildings, and land
• Vehicles such as cars and trucks
• Technology including computer equipment and software

Operating Expenses — Businesses also buy goods and services to help their day-to-day business operations function. These purchases are often called cost of goods sold (COGS) or operating expenses (OPEX) and can include the following:

• Inventory
• Supplies
• Marketing services
• Insurance products and services

How much a business is spending and where that money is being allocated are important metrics for investors and creditors to monitor. For example, if a company has purchased an excess of inventory or supplies, it could mean that its sales are lower than expected. Excess inventory purchases could also mean that the company's management team has not managed their inventory supplies effectively.

Types of Buys

Below are a few common scenarios in which the term buy is used in the financial marketplace.

• Buying a Stock Investment: Stock purchases are when investors buy ownership of the shares of a company. The investor's purchase price is called the cost basis. The goal is to sell the stock at a higher price and realize a profit. A buy order is an instruction to a stockbroker to buy a security. Many investors buy stocks through their retirement plan via a 401k plan. Oftentimes the employee pre-selects investment allocations based on their investment selection. When money is deducted from their paycheck for their 401k contribution, the money flows into their brokerage account, and a buy order is created based on their pre-selected investment schedule.
• Buy Rating: A buy rating, also known as a strong buy, is an investment analyst’s recommendation to buy a stock or security. Analysts make recommendations based on a rating scale that includes buy, outperform, hold, underperform, and sell. However, there is some subjectivity with the different stock rating scales. It's important that investors understand what each recommendation really means for that particular analyst. For example, outperform can mean moderate buy, accumulate, overweight, and add. When equity and bond analysts change their rating on a security, it will be upgraded if there is a positive change or downgraded if there is a negative change.
• Buying a Home: The purchase of a home is usually the single largest purchase an individual, family, or couple can make in their lifetime. Homebuying is primarily financed through a mortgage lender or a bank. The financial institution lends the money to the buyer to purchase the home. In return for giving the buyer a mortgage loan, the bank is paid back the original amount—called principal—and interest based on an interest rate that can be fixed or variable. The buyer usually has a number of years to pay back the mortgage loan, such as 15 or 30 years