Differences Between Service and Product Based Businesses

With thanks to Susan Varty for suggesting this topic.

Many businesses define themselves as being either a product-based business or a service-based business. While there are certainly those businesses which encompass both categories, and certainly many who will primarily think of themselves as providing both of those, it is the thoughts of the customers that matters in how the business is defined.

For example, my lawyer provides me with documents and contracts, but I think of a law firm as being a service-based business. On the other hand, the company that takes care of my lawn would be a product-based business, since what I care about is that I have a nice lawn, that is, a final product.

As a business owner, it is important that you first identify which of these two categories your business belongs to, and, as a consequence, what that means in terms of the growth and development of your business.

Product-based Business

If your business is based on a product, then your concern should be about making that product be as good as it can be in whatever way it is that you choose to market it. If it’s supposed to be high quality, then that’s your focus, it it’s supposed to be cost-effective, then you need to find ways to reduce its cost to the consumer. However, your interactions with customers are limited to finding out how you can make your product better, and the relationship with the consumer is of secondary importance.

To think about this in more practical terms, think about buying cereal at a store. You, as the consumer, generally don’t consider your relationship with the cereal manufacturer to be important, as long as the cereal itself meets your needs. The manufacturer knows this, and therefore will usually focus on the product, and reach out to consumers in order to find out how to improve those products, or create new products to meet a new demand.

Service-based Business

When your business is based on a service, then your concern is two-fold. On the one hand, you need to offer the best service possible, which may involve improving a product. Additionally, you are working directly with clients to make them happy, and as such, you must spend significant amounts of time on networking. That is, when you meet customers, it’s about more than just improving the deliverable, it’s about finding out how you can better meet the needs of that customer.

If my lawyer merely provided me with well-written contracts, I would be happy with the product, but perhaps not with the service. As such, he spends some time to understand what it is I’m trying to accomplish, so that he can anticipate my future needs. However, if the product he delivered wasn’t up to par, then even good service could not keep me with his business.

The problems a business in this situation faces is that they have to deal with all the issues of the product-based business, as well as those of networking and consumer relations. The rewards are appropriate as well, but a business that fails to take this into account is one that is thinking tactically, not strategically – owner beware.