What are the Differences Between Product and Services?


By: Site Engineer, Staff

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Elements of Service Operations

This article highlights the unique features of service operations and explains techniques that can be profitably utilized in managing them.

The service sector is expected to continue to expand as the resource sector matures creating opportunities for new businesses and the expansion of existing ones. Due to the rare of their activities, most service operations use labor-intensive techniques and are usually dominated by small firms. Managing service operations pose different challenges from those encountered in managing manufacturing concerns.

What are the Differences Between Product and Services?

Service can be defined as an intangible benefit provided to individuals, businesses, government establishments, and other organizations through the performance of a variety of activities or the provision of physical facilities, products or activity for another’s use.

To clarify the nature of services, it is useful to highlight the distinction between products and services.

A product is a tangible physical item that can be examined by inspection, handling, tasting, smelling or tasting. It can be transported from where it was produced, has existence over time, can be stored and consumed at a later date. A service is intangible cannot be transported and cannot be stored for use at a later date, unlike a product.

A service is said to be intangible because it has no physical properties. It cannot be seen, felt, tasted or tested before purchasing it. Because it is intangible, one can only experience it after purchasing it, by seeking the opinion of those who have used or experienced it, or by deduction from the physical items used in producing it.

For instance, the services of a barbing saloon cannot be seen, felt or tested without actually having one’s hair cut in the saloon. But one can rely on the opinion of others who have used the saloon or infer the nature of the service from what can be observed such as the personnel rendering the service, the types of customers using the service, and the type and quality of physical facilities being used.

In a situation where the personnel rendering the service area in a dirty shop and the building shows evidence of disrepair, hairdryers, and other facilities have picked up dust, it can be inferred that the nature of service is of low quality.

A service cannot be transported. This means that a service cannot be produced in one location and shipped to another for consumption. It is consumed as it is being produced even though the customer does not need to be physically present at the service site. The implication of this is that for a customer to use a service, he must go to a site where the service is rendered.

Alternatively, the organization rendering the service moves to where the customer is located. To enjoy the services of a hotel, one must physically move to the site of the hotel. However, the hotel can offer catering services to customers at a place of the customers’ choice by moving personnel and facilities to such a place.

Technological advancement in recent years has made it possible for some services to be rendered to customers through electronic media without either the customer or the service organization being involved in any movement. For instance, tracing–through the internet, e-commerce, e-mail makes it possible to enjoy services without leaving home. A student can receive lectures or instruction through the electronic media without the lecturer or the student leaving the places of their residence. In spite of this technological advancement, that services cannot be transported is a significant, feature of most services.

A service cannot be stored the way physical products are stored awaiting consumption at a different time or location. Services are consumed as they are being created or provided. The services of a doctor or a nurse in a health center are consumed by the patient and his relations as they are being provided. If the health center can attend to one hundred patients a day but only forty patients turn up, the unused capacity is lost forever. The unused capacity cannot be stored at a later time.

Another important characteristic of services is heterogeneity. This means that the service standard tends to vary from one firm to another and from time to time in the same firm. The services rendered to customers by a desk receptionist at a hotel tend to vary from customer to customer due to a variety of factors – the number of customers waiting to be served at a point in time, the behavior of the customer being served swings in the mood of the receptionist, etc., variability of service standard occur in the production and delivery of services largely because services are rendered by people who are able to exercise discretion in the course of rendering services.

Whereas the standard specifications of a product can be maintained through the standardized manufacturing process, inspection and rejection of products that are off-specification, this is not possible in the case of services. Careful selection and training of service personnel, specification or detailed procedures for rendering the service, supervision, and use of technology are techniques used in controlling variability in service standards but the problem of service heterogeneity remains a critical feature of services.

Components of Services

Service may be seen as consisting of two broad components – core service or substantive service and a range of peripheral services. The core service is the activity or set of activities which are directed at satisfying the primary need of consumers. For a restaurant, the core service which is the essence of the service is providing food. The peripheral services or associated services may include the service of wafers, provision of music, decoration of the restaurant, fruits or dessert, peripheral services enhance the value of the substantive service and involve additional cost to the service provider.

Three-Component of Service

  • Psychological Benefits or Implicit Services: This is the experience of a sense of comfort, upliftment, status, and well-being derived by the consumer of a service. Such an experience is usually created not only by the physical items or facilitating goods and sensual or explicit services but also through promotional programs that highlight the status and accomplishment of individuals who patronize the firm.
  • Physical Items or Facilitating Goods: A service may contain a physical item such as food served in a restaurant or a product available for sale in a supermarket. Also, a service is usually rendered with the aid of facilities such as chairs, tables, stores, ovens, computers, etc. The physical items or facilitating goods form a part of the bundle of benefits provided to customers by the organization. They make it possible for the service to be rendered. The ownership of the physical item or facilitating god may or may not be transferred to the customer process of providing the service. The food and drinks served in a restaurant form. Part of the bundle of services consumed by the customer the ownership of which is transferred. The tables, spoons, knives, forks, etc. enable the service to be conveniently rendered but ownership of such items is not transferred to the customer. Similarly, the ownership of drugs may be transferred to a patient in a hospital but this is not the case with X-ray machines, stethoscopes, etc that are used in facilitating the service delivery.
  • Sensual Benefits or Explicit Services: These are the activities of service personnel designed to create value or utility for the benefit of customers. In an educational institution, students benefit from the teaching, counseling, supervision of teachers and a variety of services from other staff of the institution. In the hospital, the patient enjoys the attention, consultation, and counseling of doctors, nurses, and other staff. In some cases, such as self-service operations, these human activities are reduced to a minimum and customers use the facilities by themselves to obtain the service. For instance, in a business center, facilities may be provided such that individual customers can browse the internet, produce documents, send an e-mail or use the fax machine by themselves without the assistance of service personnel. The explicit services of one firm may differ from those of other firms in terms of the range of activities covered, the expertise-professionalism of service personnel, i.e speed, and confidence with which the service is provided.

Designing a service involves carefully thinking through these three elements to create the concept of a service that can satisfy the expectations of the target market. Depending on the manager’s observation of the needs of the target market, the effort is made to balance the three variables.

Service Firms

A service firm is an organized system mainly involved in activities and providing facilities to meet the needs of individuals, businesses, government, and various non-governmental non-profit organizations. Examples of service establishments are hotels, restaurants, laundry and dry cleaning health care, beauty salons, repair and maintenance, amusement, communication, transportation, wholesale and retail, storage finance, insurance stock brokerage real estate, security, business service, veterinary, legal, engineering, accounting, and other professional services organizations.

As we have explained earlier, services may contain physical items and depending on the target market of interest, the physical item may constitute the prime benefit offered to the customer. In this situation, the primary concern of the firm is to produce the physical item and very little time or resources are devoted to providing explicit or implicit services. So, is it possible to call such a firm a service operation?

Consider the case of a firm to manufactures and distributes a product. The firm provides facilitating services such as an after-sales service, warranty, opportunity to return unwanted items earlier purchased, credit facilities and psychological benefits promised by the brand name or image created in the advertisement of the product. Is this firm a service firm or a manufacturing concern? Most business enterprises provide a mixture of goods and services. There are opportunities to provide services with facilitating goods or to produce goods with facilitating services.

Service firm is the one in which the dominant set of activities is providing services rather than that the production of physical items. In a service operation, the physical item and facilitating goods are ancillary to the benefits purchased by the customer. They are not the prime purpose of seeking to use the service.

The Service Concept

A service concept is the idea of the bundle of benefits expected to be delivered to the customer. A very service organization must clearly define the bundle of services and the facilitating goods that it intends to offer to me, the customer. This is a difficult process because we are dealing with intangibles.

In most cases, the entrepreneur does not make any effort to carefully define and communicate the service concept that he has in mind to offer to the target market. What then emerges as the service concept of the enterprise is what evolves as the consumer traces with the workforce of the enterprise.

The service that a given customer gets depends on what he demands and can get. Therefore, the service is subject to a high degree of variability, which may lead to the satisfaction of some customers and the lack of satisfaction of others.

To be successful, a service enterprise must carefully select, define and maintain the service concept it desires to offer to the target market. This is similar to a manufacturing enterprise offering to its customers a product whose features it has carefully selected and built into the product.

The service concept of an enterprise is the bundle of benefits conceived by the entrepreneur based on his understanding of the needs and behavior of prospective customers. The service concept is defined by decisions in three areas:

  • Psychological Benefits/Implicit Services: What image do you want your service operation to project; – quick service image, low price image high-quality image, comprehensive service image, etc? How do you want your customers to feel about your service operation or what do you want them to believe about it – a service that reflects a sense of achievement, of well-being, confidence, and status? To what extent do the facilities, personnel, the general environment of the operation project the desired image? Are your promotional messages consistent with the desired image of the service operation?
  • Sensual/Explicit Benefits: What are the different types of services that the customer needs? What are the human activities that must be performed to provide the service to customers? What is the appropriate sequence in which the activities are to be performed to achieve efficiency? How are these activities to be grouped and assigned to service personnel? What is the caliber of service personnel that is needed to deliver the level of service required by customers? What level of training or expertise should they have? What behaviors, codes of conduct, dress codes, attitudes, etc should the service personnel exhibit?
  • (i) Physical Items: the questions to be answered here are: does the service contain a product or products? If so what are the attributes of the product(s) in terms of size, strength, workmanship, packaging, quality (performance, durability, reliability, etc), price, availability? To what extent do the attributes match the requirements of the target market?
  • (ii) Facilitating Goods: What are the facilities that are needed to deliver the service to customers? What is the grace of facilities that is appropriate to meet the standard of service required by the target customers?

A combination of these variables offers several different alternative bundles of benefits from which to choose. One alternative is different from the other based on the relative importance or weight attached to one variable or the other.

Therefore, based on an analysis of the needs and behavior of prospective customers, one alternative service concept or bundle of benefits to the customer is selected.

Service Delivery System

The service delivery system is the stage-by-stage process by which the service is rendered to the customer. It begins from the point he enters the facility (for instance, parks his vehicle at the car park) up to the point he leaves the system.

As we have noted, a consumer may not be present and involved in service delivery. For example, a customer may simply call a workshop to pick up a faulty computer for repairs. Even in such a case, the service delivery system involves the processes beginning from the receipt of the order to the point at which the repaired equipment is delivered and payment made for services rendered.

A series delivery system may be equipment-based (capital intensive) or people based (labor-intensive). An equipment-based service delivery system relies on machines manned by skilled or unskilled personnel to render the service. For example, laundry and dry cleaning operation may depend on the use of machines to clean materials. A people-based service delivery system, on the other hand, depends on unskilled, skilled or professional personnel to render the service.

Stages Involve in Designing the Service Delivery System

Visualizing the stages of the service delivery and identification of the activities involved in each stage. A flowchart diagram is an important tool that enables the manager to depict the various stages of rendering the services. Visualizing the stages of the service delivery must take into account not only the requirements of service delivery from the firm but also the needs and behavior of customers patronizing the system.

Arrangement of the delivery process in a logical sequence such that people and materials flow through the system easily and conveniently. This involves the careful layout of equipment with careful attention to the needs and convenience of the customer and the elimination of bottlenecks in the process.

Determination of the process capacities at each stage. Capacity is defined as the maximum output capability of the system in terms of the number of customers served. Determining process capacity is to ensure that people and equipment are being fully utilized and that the waiting time of customers is minimized. The demand for most services often fluctuates between seasons. The demand for custom-made garments for example, usually peak at Christmas time. Restaurants in central business districts are usually full during lunch breaks and virtually empty afterward. Business centers in Universities and polytechnics providing photocopying and typesetting services to students are generally jam-packed toward the end of the semester but empty during holidays.

The pattern of demand for service has implications for capacity design and utilization. The entrepreneur may seek to alter the pattern of demand by charging lower prices during off-peak periods developing other services to utilize capacity during off-peak periods/seasons introducing a system of reservation such that customers book for services in advance. However, the entrepreneur may seek to cope with the peak demand by using part-time employees, working over-time, temporarily re-deploying staff from other areas to service delivery or by renting additional facilities during the peak seasons.

The Service Level

Consumers perceive the quality of a service in terms of the various attributes possessed by the service. In the case of a restaurant, the attributes may include the quality of the food, the variety of items on the menu price, convenience of location, neatness of the restaurant friendliness of the workers, speed of service, availability of parking space, security, etc. But the attributes of interest to the target customers can only be ascertained from the customers themselves rather than being assumed by the service provider.

Consumers may not consider the possible attributes as equally important in their decision-making process. One attribute may overshadow all the other attributes. On the other hand, even though more weight may be attached to one specific attribute, yet the service must possess a minimum level of the other attributes to satisfy the customer’s expectations.

The service level is a standard to be attained by the firm concerning the service attributes that will meet the quality expectations of the customer. Determining this standard is the entrepreneur’s decision, given his understanding of the quality expectations of the customer.

For example, what is the standard service time that can meet the expectations of the customer and that is achievable by the firm? What is the price that consumers can pay that also reflects the cost of operation and profit expectations of the entrepreneur? What variety in the menu is sustainable and which will meet the demands of customers? How much skill do the personnel who provide the service demonstrate? How many different peripheral services should be offered to the customers by the firm? The higher the overall service level, the greater the cost of producing service, hence the higher the price. This implies that a realistic approach is to offer a service level that meets the expectations of customers and yet is affordable by the target market and sustainable by the firm.

It is important that the service level is clearly defined and communicated to customers and employees.

First, the customer knows what to expect and may only be dissatisfied when the proclaimed service level is not attained.

Second, the service level is an important competitive strategy to win and retain customers. Establishing a competitive but sustainable service level, the firm establishes an image of consistency which is attractive to customers.

Third defining service levels and communicating them to service personnel establishes the standard of performance based on which they are evaluated. This is particularly important when the organization is large and the performance of service personnel cannot be supervised directly.

Location and Site Selection

This subject has been discussed in detail in an earlier chapter. It was acted that a key strategy of successful small businesses is the choice of location and site given that they have a relatively weak capacity to compete both in the product market and resource market.

For service operations in a particular location and site selection is critical to success. This is because, for most service operations, customers have to be physically present at the service site since services can neither be transported nor stored.

Quality in Service Organizations

Controlling quality in service organizations is different from what obtains on manufacturing enterprises. Since services are consumed as they are being produced, some of the quality control techniques used in manufacturing systems do not apply to service organizations. Also, because services are intangible, customers of service organizations used certain clues such as price, physical facilities, and service personnel to assess the quality of service.

If the price of a service is low relative to that of competing services, then the quality of that service is regarded as low. The aspects of physical facilities that customers consider include architectural attractiveness and neatness of the building, the general environment, the arrangement of service facilities, orderliness, the standard and quality of equipment, state of repair of equipment, etc. Concerning service personnel, customers depend on what they see and hear to make a judgment of the capability of the firm to render quality service. In particular, customers assess service by the dress of service personnel their state of well-being, courtesy, skill careful analysis of all possible cues that customers might depend upon to make a careful analysis of all possible cues that customers might depend upon to make a judgment and building them into the service delivery system.

Of critical importance is to ensure that the different sources of cues (price, physical facilities and service personnel) yield quality perceptions that are consistent with each other. If price and physical facilities suggest high-quality service but service personnel suggest low-quality service, inconsistency exists and customers likely perceive the quality of the service as low.

A useful technique for ensuring the reliability of service delivery establishment of a procedure for delivering the service which all service personnel must adhere to. Consider a common activity in educational institutions – registration of students for their programs. If every registration official was left to adopt his own devices to register students, some would obtain a great deal of data from students, most of which are needed while others would obtain a little omit some vital data. To generate reliable data, a procedure for registration must be devised which all registration officials should adopt.

A second technique is the careful selection and training of service personnel. All service personnel must be carefully selected and trained in the routine of service delivery. Particularly, they must be trained to have adequate knowledge of the service and the organization, to understand and adopt the approved procedure for delivering the service and to handle customer complaints when they arise.

A third technique is to “industrialize” the service delivery system. This means that whenever it is possible, machines can be used to carry out certain routine procedures that are usually carried out by people. This helps to reduce the variability of service and customer complaints.

Controlling the quality of service operations requires that the entrepreneur has a system of monitoring and analyzing customer complaints and responding to them quickly. But what is more important is to achieve an error-free service delivery system. This requires continuous monitoring of customers’ perceptions of the quality of the service, anticipation of possible shifts in the perception and adjustment of service levels to meet the new expectations.


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