Product-Based Businesses

A business primarily engaged in the sale of products has a focus that is different from that of a service-based business. In a product-based business, customers don't, for the most part, expect extensive personal services to be performed as part of the deal. They want their box of chocolate, or their auto accessory, or their new flight simulator software.

In some cases, your business may be the only source for the product. Some software is available only by mail from the manufacturers. If you want their product, you buy it from them. But even with such "unique" products, there are generally similar competitors. At the other extreme are businesses that carry goods that are widely and readily available. The bottle of pop purchased at the convenience store could just as easily have been purchased at the gas station, a vending machine at work, or a deli.

This suggests that businesses based on a unique product face a somewhat different environment from that faced by businesses carrying products that are widely available. In the case of a unique product, the competitive advantage your business should enjoy is based on the product itself. In the case of fungible products, your ability to sell turns on factors other than the identity of your product. This distinction should be kept in mind when formulating a business plan. Of particular significance is how long you can expect a unique product to remain unchallenged in the market place. If you're having some success, you can bet others will rush to break your temporary "monopoly."

Another factor to be considered is the identity of your customers. Retailers sell to the general public at large; wholesalers primarily sell to retailers and manufacturers can sell to wholesalers, to retailers, or to the public directly. Where does your business stand in that hierarchy? Who are your customers? For example, consider a manufacturer expecting to use established wholesale channels to distribute a new product. Not only must the wholesalers and retailers be convinced to carry the product, the retailers must generate sales sufficient to make the product profitable. Successfully selling to the distributors doesn't ensure successful marketing of the product to the ultimate consumer.