Production Orientation

Production Orientation

Production orientation follows the premise that any product of high quality can be readily sold.

The evolution from production-oriented organizations to marketing-oriented organizations was driven by a shift toward a marketplace that catered to meeting customer wants and needs rather than strictly delivering product features and functionality. In today’s business world, it can be argued that customer desires, concerns, and opinions, rather than industry profits, are the driving force behind many strategic business decisions.

However, until the 1950s, organizations relied on the assumption that their businesses would be profitable so long as they produced high-quality products that were durable and worked well. This business model — also known as production orientation — soon became outdated as the marketplace turned into an increasingly crowded and global one. In the decades since its introduction, marketing orientation has been the model of choice for brands looking to sell products that compete effectively for consumer attention and brand loyalty.

Economies of Scale in production-oriented Organizations

During the Industrial Age of the 18th and 19th centuries, production-oriented companies thrived due to both the scarcity and high demand for mass-produced, high-quality goods and services. Industrial firms focused on production orientation models that exploited economies of scale to reach maximum efficiency at the lowest cost. This business practice can also be explained by Say’s Law, which states that “products are paid for with products” and that “production of commodities creates, and is the one and universal cause which creates a market for the commodities produced.”

Economies of scale posit that by driving efficiency, companies (particularly production-oriented organizations) will realize significant cost advantages as they expand operations. For example, companies that focus on increasing economies of scale will see reductions in unit cost as the size of facilities and the usage levels of other inputs increase. In theory, such organizations can ramp up production until the minimum efficient scale is reached. Some common sources of economies of scale include:

1. Purchasing -bulk buying of materials through long-term contracts
2. Managerial – increasing the specialization of managers
3. Financial – obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments
4. Marketing – spreading the cost of advertising over a greater range of output in media markets
5. Technological – taking advantage of returns to scale in the production function