Product Versus Services- Some basic concepts

A mention of “bundle of products and services,” in some write ups indicates that the line between product systems and service systems is not necessarily always clear. Nevertheless there are important differences between them. Products are tangible things that we can carry away with us, whereas services are intangible and perishable and are consumed in the process of their production. Products may be produced to inventory and made available “off-the-shelf,” whereas the availability of services requires keeping the productive system that produces them in readiness to produce the services as they are needed. In addition, the person being served often participates in the productive process, as by providing part of the labor in self-serve systems. In product systems there is very little if contact between the producers and the users of the product; that is left to distribution and retailing, when customers purchase an item or have it serviced. On the other hand there is a great deal of contact with the client or customer in services systems. Indeed, how much individuals rate a service depends on how the service is given. Human contact is almost the essence of many service systems. In product systems processes to convert raw materials to physical products may involve a multitude of interrelated steps, but the processing required in the service system is usually simple, involving only a few steps.

Other important contrasts between product and services have to do with demand variability, markets, and the location of the productive system. The demand for product certainly varies with time, but that variability tends to be on a weekly, monthly, or seasonal basis. On the other hand the demand for services is often extremely variable on a short-term basis; that is, weekly, daily, and even hourly variations are common. This extreme short-term variability in the demand for services means that the system must be able to expand and contract its productive capacity rapidly if it is to be cost efficient. Alternatively service systems can either absorb the costs of over capacity by designing for peak load conditions, or they can absorb the costs of under capacity (lost sales and customer dissatisfaction) by designing for something less than peak loads.

Market served by a productive system for product can be regional, national, and even International. Because of the size of potential markets for products it is often possible to take advantage of the economies of scale through mechanization and automation. Thus productivity in manufacturing has enjoyed very substantial increase over the years. Conversely because the services cannot be shipped to distant places, a productive system for services must ordinarily serve a local market. Therefore even though the total market may be national or international (for example, the market for fast foods), the market served by a given productive unit is small, resulting in relatively small units that cannot take great advantage of economies of scale. The location of productive system is dictated by the location of local markets. If the service system is the nonprofit organization, then the location is dependent on the location of the users, as is the case with post offices, medical clinics, and so on.

Services as a Part of the Product:

If you examine the nature of the delivery system for physical products, the clear line between product and services is much less apparent. Almost all purchases of consumer products involve services as well as the product itself. If you buy an automobile for example, you buy not only the product but also the guarantee and some servicing of the car.

Services that extend beyond the manufacture’s guarantees and services are usually related to retailing operations. When producers buy products from other producers (raw materials and supplies), they may also be buying services in the form of credit, supply in relation to production schedules, technical advice and service, and so on.