Production and distribution are the two major departments of the business. Their main aim is to generate profit by satisfying customers. The market is over-flooded with millions of produced items that you use in your daily life. Do you know sugarcane is the most produced commodity in the world? Have you ever given thought to who receives the goods and services produced and how does society decide what goods and services will be produced? Well, these are some of the questions which will be explored today.
1. What is Production?Photo by Arshad Pooloo on Unsplash
When raw materials are converted into finished goods, the process used to do so is known as production. It is the process of combining different material inputs like raw materials and immaterial inputs like knowledge for producing things for the consumption purposes of the customers. The finished product of the same is termed output. (See What is production concept in marketing?)
2. What is Distribution?
Before understanding who receives the goods and services, let us walk through the definition of distribution. After production, the goods and services need to be delivered to the market for selling. From the market, these goods and services are either directly purchased by the ultimate consumers or by the retailers. Either way, the goods, and services will reach their consumers. This process of carrying goods from the manufacturer to the place of selling is known as distribution. Different channels of distribution are used for a smooth flow of goods and services from the manufacturer to the consumers like wholesalers, retailers, distributors, etc. (See What is the Importance of Transportation in your Life?)
3. Who Receives the Goods and Services Produced?
After the production process, goods and services are transferred from the manufacturing unit to different places. Depending upon the nature of the goods, they are transferred to the following places:
A. MarketPhoto by Braden Collum on Unsplash
If the product is non-perishable and can be kept in the market in large stocks it is transferred there. From the market, these products will be purchased by producers, wholesalers, retailers, and consumers. (See How is Demand used in Economics?)
This channel is used when the producer has made a huge bulk of products that cannot be transferred to the consumers directly. So, the wholesalers act as the middleman and purchase in large quantities for the resale purpose. They will purchase all types of consumer goods which they can either sell to the retailers or to the ultimate consumers. Must see Where do You Start in Creating the Master Budget?
C. ConsumersPhoto by Kayle Kaupanger on Unsplash
They are the ultimate consumers for whom every good and service is produced. Here direct marketing takes place where the products are directly distributed to the consumers. A consumer can also purchase from the market or purchase it from wholesalers or retailers. However, if their motive is to make other goods from the product and then sell, they are not considered the ultimate consumers. For example, you purchased wool and made beanies and sold them on an online platform. Must read about the Different types of Customers in Marketing and Retail.
D. WarehousesPhoto by Petrebels on Unsplash
These are the places where goods are kept after production until they are sold. They serve as a link between the producers and the distributors. They are helpful for storing goods during the off-season, low-demand periods, etc. For example, storing woolen clothes during summers.
There is still much to read after knowing who receives the goods and services produced. (Also read Why was Cottage Industry Replaced by Mills?)
4. What is the Production Rule?
As you are aware of who receives the goods and services produced, let us discuss the production rule. The production process works on the principle of what, how, how much, and for whom to produce. Every production company needs to analyze these factors before beginning production. They need to figure out
- What should be produced
- How it should be produced
- How much should be produced
- For whom to be produced
It is the society that is the decider as they are the ultimate customers and the producer and manufacturer must understand the prevailing demands in the market. (See How to develop a new product from concept to market?)
5. How does Society decide What Goods and Services will be Produced?
There are different types of economies circulating within a society namely traditional, command, and market economic systems. These economies have a significant impact on the production and distribution process. How does society decide what goods and services will be produced? Well, society plays a major role in deciding what goods and services will be produced, by the choices that they make.
- Traditional Economy: This economy is deeply based on long-standing customs and cultures. The main resource of production here is the land which is mostly owned by the farmer families who produce crops on them. The produced goods are for self-consumption. They do not sell it into markets. Such economies are rigid and therefore, in most countries, this system is replaced with the modern economy. But in developing countries like Asia, Africa, and South Africa it is still prevailing.
- Command Economy: In this economy, the decisions related to production are made by the state or government on the basis of the prevailing customer needs and preferences in the country. Anything which poses danger to the public is prohibited from production. Such an economy is termed a centrally planned economy or planned economy. The product, price, wage for production, etc. are all decided by the government.
- Market Economy: This economy sees and follows the rule of what, how, and for whom. This economy is laid down on the idea that society must have the freedom of choice, there should be healthy competition among producers, and every individual must have the liberty to pursue private wealth. This economy is termed a capitalistic economy and here customers are the game changer. If they like a particular product or service, the production of it will increase; otherwise, the opposite will happen.
For example, if the demand for crop tops is high in the market, the production of crop tops will also be high. There is hardly any government interference in the type of products to be produced unless it is harmful to the country. The United States is the largest prevailing capitalistic economy in the world. (See What is a Fundamental Economic Problem?)
6. Who Receives the Goods and Services Produced in the United States?
We have a general understanding of who receives the goods and services produced, however, let us look at the market condition in the US. It is generally a free market economy in the US and the production of consumer durables is dependent on the tastes and preferences of the customers and society. Sometimes, there are certain sectors for which the decisions related to production and distribution depend on the government, and the government then compiles and collects the data through the Bureau of Labor Statistics. Once organized, it is used by the Bureau of Economic Analysis to estimate the GDP and the national income of the country.
For example, postal services are controlled by the government, and the goods required by this sector are regulated by the government. (See How are Humans Economics and Ecology Linked?)
7. How are Production Houses controlled?Photo by Jezael Melgoza on Unsplash
The type of products to be produced may be decided as per the tastes and preferences of customers but the regulations according to which the production process will take place are controlled by the government. Factors like minimum wages for workers, working hours per day, emission standards for limiting pollution, and taxes (excise duty on goods like cigarettes) are imposed on the producers. Moreover, the standards of raw materials, the number of chemicals (if needed), etc. are fixed to keep the exploitation and standards of goods and services in check. (See What is Scarcity and Choice in Economics?)
8. What Other Factors affect the Production of Goods and Services?
In a capitalistic economy, tastes and preferences are the determiners of the production process, but there are other factors too. Take a look below:
- Income of the Consumers: If the income of the consumer is less, he will prefer cheaper goods and services, but a higher income will let him have an expensive product too. Therefore, the income of the people in a society will define which type of products will be produced. Income is always a prime determiner of who receives the goods and services produced.
- Habits: Different types of people have different habits. Their age and gender also affect their habits. If there are more senior citizens the production of products in society will be according to their habits while if there is a mix of generations the production will be according to it.
- Prevailing Trends: Everyone loves to follow the trend irrespective of their age and gender. For example, the fidget spinner was a trend once and every age group was so much into it. Therefore, it increased the production of the fidget spinners in the market which gradually decreased as the trend changed.
So, consumers along with wholesalers and retailers are the ones who receive the goods and services produced. Moreover, who receives the goods and services produced in the United States is nothing different from other economies. If you like this information and find it a good read, share it with your friends. (See What is Empowered Consumerism?)