Producer products

Producer products, sometimes called industrial products or goods, are used by a business either to manufacture another product or as an essential item for the running of the business.

Production machinery, plant and equipment are fixed assets and appear as such on the balance sheet. Decisions to purchase such items are usually taken at the highest level and are carefully evaluated by specialist staff, even project teams, before orders are placed.

Raw materials are revenue items and will be represented as stock, work-in-progress and perhaps finished goods in the current assets of the firm. Current assets are things owned by the business which are regularly used up and regularly replaced.

Components appear as stock, work-in-progress and finished goods in the firm's accounts. Purchasing decisions are usually made after detailed negotiations have taken place between technical experts from both firms.

Supplies. These fall into two categories:

a) Basic materials that are required in manufacture, such as lubricating oils, cleaning agents and materials, spare parts for maintenance and so on.

b) Everything needed to run the business, including stationery, printed forms and materials, catering items, toiletry items and so on.

Most of these items will be current assets, although in many cases they are too dispersed to be counted for accounting purposes. They may be purchased by the purchasing officer or by staff who have been authorized to do so.

Business services. Many businesses do not have all the expertise needed to operate and they buy these services as and when needed. Legal, accounting, personnel, advertising, management consultancy and training, for example, are available to those who need them. They are intangible and therefore do not appear in the accounts as an asset. They are an expense.

Decisions to purchase such services are usually taken at the highest level.

We need to distinguish services from tangible products. The Ameri­can Marketing Association simply describes services as "activities, benefits, or satisfactions which are offered for sale".

Any service tends to be intangible - that is, it has not got a physical existence. You cannot touch it. On the other hand, products are tangi­ble. You can see and touch them and watch them perform the function they are intended to serve.

Products and technology

Marketing thinking should not begin with a product, or even a product class, but rather with a need. The product exists as one solution among many to meet a need.

Now a need is satisfied by some technology. The need for "calculating power" was first satisfied by finger counting; then by abacuses; still later by slide rules, adding machines, hand calculators, and computers. Each new technology normally satisfies the need in a superior way.

Within a given demand-technology cycle, there will appear a succession of product forms that satisfy the specific need at the time. Thus the hand calculator provided a new technology offering "calculating power". Initially, it took the product form of a large plastic box with a small screen and numerical keys, and it could perform only four tasks: adding, subtracting, multiplying, and dividing. This form lasted a few years and was succeeded by smaller hand calculators that could perform additional mathematical operations. Today's product forms include hand calculators no larger than the size of a business card.

Companies must decide what demand technology to invest in and when to transit to a new demand technology. Today's companies face many changing technologies but cannot invest in all of them. They have to bet on which demand technology will win. They can bet heavily on one new technology or bet lightly on several. If the latter, they are not likely to become the leader. The pioneering firm that bets heavily on the winning technology is likely to capture leadership.