Understanding Product Based and Service Based businesses
This article will likely pertain to anyone who may be considering a business start-up versus someone who already own a business, but it never hurts to refresh one’s knowledge when it comes to business.
We can all agree that the most obvious difference between a service based and product based business is that one sells a “physical” or “tangible” item and the other sells a skill, a resource or some type of labor. For example a product based company might sell televisions or breakfast sandwiches, while a service based business may offer tax preparation, dog walking or computer repair.
It may be helpful to know that I have personal experience with both product based and service based businesses, having owned a restaurant and a computer repair business. I can tell you with a high degree of certainty that there are significant differences in every facet of operating there two types of business, so let’s discuss them now.
Fundemental differences between product based and service based businesses
Obviously a product based business will be focused on selling a quality product. The success of the company may depend largely on repeat customers and would therefore want every customer to be satisfied with the product they purchased.
A service based business will also want return customers and also want satisfied customers, but are likely to place a strong emphasis on the client relationships and ensure that the customer’s user experience was exceptional.
But let’s discuss some of the deeper contrasts between these two forms of business structure. As mentioned above you will need distinctly diverse approaches to a product based and service based business in the following areas.
Marketing Strategy and Scope (Products) – In each of our categories in this section we will start with a product based business and follow up with the service oriented style. So with respect to marketing, as you might imagine, a product is much easier to market than a service. This is largely due to the fact that products are tangible, you can see them, touch them, so people how they work and prove they are effective through demonstration.
Furthermore, the quality of the product is generally easy to improve. Unless you are cornered into selling a specific brand or model, you can very often simply change the brand or model you are peddling, with improved quality in mind and (fingers crossed) increase sales. And of course with most products the buyer can simply return or exchange the purchase, if they are not satisfied.
Products are marketed with the 4P’s of Marketing, Product, Price, Promote and Placement. We have already discussed the quality and reliability of your product as a must, the bottom line here is that you must give the customer good value for his or her hard earned dollar.
Price is relatively straight forward; are you competitive with your pricing and of course are you making enough money, both are important, if you want to stay in business.
Lastly, you will need to promote your products and you must place your product in front of the right customers. It doesn’t do anyone any good, if no one knows that you are selling a product and likewise no one is going to buy from your hotdog stand outside of a vegan convention. If you want to sell a product, you must have a solid promotion strategy and put those promotions in front of the right people.
Marketing Strategy and Scope (Services) – Marketing gets a little more challenging when we talk about a service based business. The bottom line here is that new customers simply don’t know you and are programmed to be overly cautious.
There is a reason why wesbsites like Angie’s List exist. And the reason is that there are people out there offer less than credible services for a price, buyer beware.
Business Reputation and Repeat Sales