Understanding Production Concept
In the early days of capitalism, a business strategy known as the production concept dominated the market. This approach, which prioritised mass production of low-cost items over customisation to customer needs, was predominant from the inception of capitalism until the mid-1950s.
During this era, businesses primarily focused on production, manufacturing, and efficiency issues. The importance given to production was due to the "Says Law," a concept proposed by French economist Jean-Baptiste Say, which stated that supply creates its own demand. As a result, businesses during this time believed that the more they produced, the more consumption of the product would increase.
This impersonal approach towards customers often led to challenges in sales and delivery, with sales mainly done by travelling salesmen, and delivering material after sales being a significant hurdle due to less communication and travel.
The production concept was most effective in high growth markets or where the potential for economies of scale was significant. Companies interested in taking advantage of scale economies tended to pursue this kind of orientation. Managers pursuing the production concept tried to achieve higher volume with low cost and an intensive distribution strategy.
However, this strategy assumed that customers would choose products and services that were widely available and of low cost. With increased competition and a shift towards customer-centric strategies, the production concept is no longer prevalent.
Today, businesses have moved towards the product concept, which focuses on defining the core of a product—what it is, who it is for, and the benefits it offers. This approach helps businesses align their product development, marketing, and sales efforts with clear customer focus and competitive advantages.
Despite its decline, understanding the production concept is crucial for business history and strategy. It serves as a reminder of the importance of balancing production efficiency with customer needs in a competitive market. While the production concept may not be the dominant strategy today, it has left a lasting impact on the way businesses operate and think about their products and services.
In light of the production concept's decline, it's evident that the focus of businesses has shifted from finance and industry, specifically manufacturing and trade, to a more customer-centric approach, known as the product concept. Regardless of its diminished relevance, the production concept remains an essential part of financial and industrial history, imparting insights about the need for an appropriate balance between production efficiency and customer needs within business strategies.
