Product vs Service

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Is there really a distinction in value between selling a product and providing a service?

There is a constant debate about what’s easier to sell between intangible and tangible products.

Tangible products are commodities that the client can see and hold, i.e. food. Tangible products are perceived to be easier to sell / market because the client can physically inspect it prior to making the purchase.

Intangibles are those that the client can’t actually hold. These are usually services oriented, for example insurance services. Selling an ongoing service requires a very different approach from a one-way product transactional deal.

You need to establish immediate trust through your approach and strategy to get clients to subscribe / buy into your service. One advantage about selling a service as opposed to a product is that some services tend to be ongoing. The client often keeps paying month after month as you keep providing the service, thus creating an ongoing revenue stream model.

Are these two models just co-dependent in that they both serve different purposes and depend on how you sell / market your business? Should you be providing your customers with a holistic solution?

Post By: SimplyBiz Image: FreeDigitalPhotos.net This article has been repurposed for this blog, original article can be sourced from: Paramarketing.com

 

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14 comments
    I'm in a an interesting position in that I'm involved in both a services and products business. They're separate and come with their own unique challenges. I would say that a common thread across both businesses is the need to managed scope creep. Just a short explanation: in the services business scope creep is where the client tries to access additional time or outputs without having to request a new quote and change the contract price. In the product business it's when the client asks to just quickly do something because you are there. In both instances small businesses need to be vigilant and guard against it. Interesting to note is that we have recently decided to package products in the services business not because we think it’s easier though mostly because we see it as an additional revenue stream. In the products business we offer after sales care and basic repairs so technically we also offer services there. If I think about it I would agree that they’re definitely complimentary but one is core and the other seen as ancillary. I’m not sure if I’ve answered the question but I hope my comments help someone.
    When pricing services there is a bit more leeway than pricing products. The price of a product is more objective. The price of a service is more subjective so that there is a gray area.Pricing is both an art and a science. Cost-plus pricing is astandard method of pricing in business and seeks to first determine the cost of making a product or in this case providing a service and then add an additional amount to represent the desired profit. To determine cost you need to figure out direct costs indirect costs and fixed costs. Soif you're paying someone R100an hour you may think you should charge R100 an hour for the service they provide but you have to factor in all your costs. Those costs include a portion of your rent utilities administrative costs and other general overhead costs.
    You also need to be aware of what competitors are charging for similar services in the marketplace.This information could come from competitor websites phone calls talking to friends and associates who have used a competitor's services published data etc. I don't think it's a good idea for any entrepreneur to compete on price if you can avoid it. Compete on service ambiance or other factors that set you apart. But if you have to compete on price to win a customer you may ask yourself whether that customer will be loyal to you if they find someone offering a service at a lower price. You want to establish long-term relationships in the marketplace. So you need to convince the customer that you are giving them tremendous value in terms of service and quality. You just need to be aware of what the competition is charging.
    What about percieved value to the customer? This is where a lot of the subjectivity comes in when setting a price for a service. When you have a product you may decide to use keystone pricing which generally takes the wholesale cost and doubles it to come up with a price to charge and account for your profit. With a service you can't necessarily do that. To your customer the important factor in determining how much they are willing to pay for a service may not be how much time you spent providing the service but ultimately what the perceived value of that service and your expertise is to them. That is where pricing becomes more of an art form.
    TheTastyChef when we consider pricing services we think about factors like rent overheads like printers rental rates etc. If you build in what its costs to have the person on board in your business then you will get a better cost to company amount and you can then use this to figure out what you could/should be charging your customers.
    I agree that you should only venture into this space as a last resort. I've seen situations where businesses have offered great discounts to customers in order to win work only to then find themselves locked in at that price for an extended period.
    Well my take is that both are commodities that behave differently and are approached differently. Both can be extremely rewarding of done right and extremely damaging if done wrong. I think the litmus test would be which would be a better business to run (and this is just my way of thinking and I know it has holes but just go with me for a minute...Lol) if the economy turns for the worse and affects both type of businesses alike hypothetically Which business would weather the storm longer and have more options to diversify and reinvent itself in a more cost effective way? and on a thought like that one could argue that the service services might give that entrepreneur more flexible options to be creative and work around the difficulty with his commodity which happens to be a skill performed by a person who has the ability to empathize cut-slack regenerate think share the burden whereas the entrepreneur sitting with stock is worried about storage expiry date irrecoverable transport costs etc and worse off if their product is someone else's manufatured product that cannot be easily altered moved or disposed of. And with those odds I feel Iwould run with a services business. I will never forget at a season in my business we got ripped off by a much larger company at a time when I only managed a handful of talented artists who were my everything...after helping this firmon a major project they paid us nothing near what we had agreed. We had sacrificed nights and days fuel and money and got launched.After all was said and done me and people felt demoralized dissilussioned and just ready to give up... I remember the fear of loosing my most talented people after this loss but I chose to make them a promise that I would be more careful on getting future jobs and if they stuck with me through that near death season they will thank me one day. Well they agreed to take the peanuts we were paid and stuck with me and today we have enjoyed years of better and bigger projects together. Not one of them left. Somehow I dont think this story would read the same if I was in a commodities business. Maybe I am just wired better for services... You be the judge!
    As a consultant there's a very very very tricky model where you use a gainshare model. This is where you reduce your standard rates but you agree to share with the client any savings or additional revenue you are able to realise as a result of your appointment or engagement. I say that it's risk because you have to be really certain about your ability to unlock value or profit or create savings. If you are unable to unlock value or increase revenue then you basically lose out because you sold your consulting time at cost or a greatly reduced price.
    Also YOUR percieved value of the service you provide is key. One must align their percieved value to hard-core data and ensure it matches the need and the affordability of their target market. You tend to see businesses fall into the price matching trap when they are trying to lure clients who should effectively be on someone else's radar. It is important to make peace with the fact that a certain service cannot be afforded by everyone and that walking away sometimes is the wiser choice.
    Wow that is pretty inspirational! I suppose it depends on what busniess you are in if its a hard and fast commodities trading I feel it would be fairly difficult to adapt to services-however not impossible! I can only speak from my own experience but as a chef have tried it all...from opening an unsuccessful bakery to restaurants to private cheffing. This is not due to a bad product but rather a variety of circumstances:limited customer base wrong position less than ideal marketing strategiesand mostlyinexperience in the beginning!The one thing I have always been sure of is the quality of what I produced-it has and always will be the forefront of my business and something I refuse to compromise. If only it were that simple though...through myyears of some success and more failure it hastaught me that what does pay is charging for my service as opposed to producing a product and selling it. It is a simpler business module without the direct stresses of staffing production market lapses change in trends. Yes they all need to be kept in mind and of course I still need to market myself to get work but if I don't get work for a few weeks nothing is going off staff/rent/suppliersaren't going unpaid it all lands on me! Now that I have positioned myself as a private chef the only commodity I lose if I don't get the job is the time spent on preparing the menu's and quotes and of course the fact that I need to pay my living expenses- my clients are paying for my experience and skill - and should the job be too big for me to handle I outsource on a per project basis...something I feel business owners should consider if they are to weather the rocky economic climate we are faced with.
    Wow Arctic1 that does sound really tricky! How do you ensure yourself of an income apart from knowing that you can do your job really well? And what recourse do you have if the client doesn't feel that you have done what they expected? Also how do you forecast? I hope this isn't a silly question butwould you mind elaborating as Idon't quite understand.
    I fell pray to this for years as I was desperate to build a customer base and start making money! It is only reacently that I realised to focus on the higher end target markets and RAISE my price...I have never looked back! I now get the desired clientele and I am making money all this from realising my worth and charging for it. Of course this is not possible in all business models but for a service based business it is well worth considering a niche market instead of trying to get any work on offer.
    As an entreprenur that provides services it is being intelligent that you makeyour clients aware of the problem that they are facing and let them be aware that you are the right person to provide them with a solution.
    @pjdougall no