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Products & Services: Definitions & Classifications

Instructor: Tara Schofield
One of the key decisions to make when starting a business is whether to offer products or perform services. This lesson discusses each and gives greater insight into the difference between products and services.

If you are considering starting a business, one of the first decisions you will need to make is what you will offer your customers. One of the key decisions is whether you will provide a product or offer a service. Most businesses offer a combination of the two, though they tend to focus primarily on one type of offering.

Products

A product is a tangible item that your customer will buy that a company manufactures, mines, or re-sells. A product can be an item a consumer purchases for individual or family consumption. It can also be a tool or item that a business purchases for commercial use. Companies often buy products with the purpose of re-selling those items to consumers. Consider going to the grocery store and seeing aisle after aisle of products from hundreds of different companies. Each of these products are available for consumers to purchase from the grocery store, after the grocery store purchased it from the manufacturer.

Products are almost too vast to count. Household products include everything from furniture, clothing, and toys to pots, dishes, and food. Personal products include beauty products, vitamins, glasses or contacts, toothbrushes, and a wide array of items designed to meet individual needs.

Products can also include commercial items, such as office supplies, cleaning products, furniture, equipment, and production materials. It can also include specialized items that may be needed for specific types of industries, such as food in a restaurant, candles at a candle shop, or keys at a locksmith's business.

If a business is product-focused, it will primarily offer tangible items for sale. Retailers and food services are primarily product businesses because the majority of their sales comes from selling products to their customers. They may offer services to support their product sales, but their focus is on products. For instance, a restaurant offers food as the product. But they also have wait staff and may offer entertainment to their customers. While the service is important, the product (food) is the primary way to earn money.

Service

A service is an intangible action that your customers will pay you to provide. Services are focused on personal interaction and often provide very individualized results. Because services are often tailored to the specific needs of the company, they are vital to the operation of a company. By knowing the needs of your clients, you can provide the services that will help their business run smoother, be more efficient, and make more money.

Some of the common services that businesses need include legal advice, accounting and bookkeeping, and cleaning services. Services can also include delivery, consulting, and training activities. While services may not be tangible, they can be vital to the success of a business.

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