Understanding the Difference Between Product Businesses vs. Service Businesses

Product-based businesses are vastly different from service-based businesses in anyways, including startup and running costs and best marketing techniques.Selling a service is vastly different than selling products. At the heart of it, the main difference is that a product business sells physical, tangible objects, whereas a service business provides value through intangible skills, expertise and time.The marketing technique and costs vary when you’re selling services versus selling products, as well. Understanding these differences can help you cultivate the right approach for your business.

Product-based selling

When selling a product, businesses will want to highlight specific features and display the item in-store or online for customers to view. In some cases customers can touch or manipulate the product before purchase, or they may have the opportunity to see it being used in a demonstration via sales teams or online videos.Products are designed to meet the needs of the customer, but cannot always be customised if there are certain. If a customer isn’t satisfied with a product, they can easily return it or exchange it for a different one. With products, it’s easier for a customer to determine its value and whether or not their purchase was worth the money they spent. Customers can rate a product online, and prospective customers can use the ratings to determine whether they want to buy the product.The challenge for product businesses is keeping up with product demand and finding room to store inventory. Running out of inventory can result in bad customer reviews and dissatisfaction, so it’s important to track the manufacturing process, the number of items you have and what customers are buying so you always have enough of each product.

Service-based selling

When selling a service, it’s crucial to highlight what makes your service personal and how you can meet the customers’ needs. Typically, marketing services requires building trusting relationships with customers and customising them as necessary. This may include low monthly or yearly subscription packages or additions to the standard service offered.Generally speaking, service businesses are less expensive to operate than product businesses because there’s no inventory, and the physical location of a service-based business is often irrelevant (though, this will vary based on the type of service offered). The pricing for service businesses, however, can vary greatly depending on various factors, including the specific industry, the experience of those operating the business and the amount of time it takes to complete the service.However, it can be more difficult to get ratings for a service business because it may take longer for a service to be completed or to take effect, whereas a product can be used and then evaluated, reviewed and shared almost immediately.Furthermore, a bad review for a service can take quite a toll on the business. A service cannot be returned and exchanged like a product, so it’s important that businesses continually evaluate the service they’re providing. Bad reviews for a service-based business can create a negative brand image and turn prospective customers away. Addressing customer questions and complaints in a professional manner will aid in resolving any issues that arise.Whether you choose to run a product business or a service business, it is important to do your research and understand how best to satisfy your customers. Take note of what your competitors are doing, what prospective customers are looking for and determine how you can compete and meet the needs of those customers. Once you start learning customer trends and collecting feedback, you can adjust your strategies and beat out your competition.

Selling Services v. Products: What’s the Difference.

Selling Services v. Products: What’s the Difference?:

Full Transcript

Let’s take a trip together to IKEA. Now, we’re not going just for the Swedish meatballs. We’re headed to IKEA to buy a rug. You see, I’ve been making some small upgrades to my home office, and I’d like to cover my floors with two new rugs. I want your opinion, so let’s go together and I’ll drive. We pull up to IKEA and we find a parking space. 10 minutes in this case is record time on a Saturday, so we head over to the home decor section and look at the rugs. Which one to get? Well, there are different sizes. Some would cover my entire office floor. Others are just for hallways. They’re called runners. I learned that from my wife. Still others are small enough to fit two or three in my office. They come in different colours. Some are solid blue, or green, or orange. Some have intricate, European and Persian design speckled with bright colours, and others are muted and monotone.The rugs come in different textures. Some have a rough, canvas feel. Others have a high pile that’s soft and cushy underfoot, and others are pretty flat with short fibres. They come in different qualities and styles. Some are handmade. Some are just printed in mass produced. Some use better materials than others. Of course, IKEA rugs come at different price points. Some rugs of the same size range from $100 to $1,000, depending on their materials, and exclusivity, and the lobar that went into them.So, what’s it going to be? Which rug should I buy? If you were actually at IKEA with me, we’d be able to figure it out. We could touch and see every single rug, easily compare their prices, and lay out their sizes in a hand drawing of my office. No problem. Rugs are tangible. That, my friend, is the key difference between selling products and selling services. Products are tangible. Services are not. But it’s not necessarily that black and white, and the fact that products are so tangible and services are not has large ripple effects in how we sell one versus the other.In this episode of Modern Sales, I’ll go over the three key differences between selling products and services and what you can do to make your professional services just a little easier to buy. Welcome to Modern Sales, a podcast for entrepreneurs, business owners, and sales people looking to have more and better conversations with your perfect clients. You’ll get a healthy scoop of psychology, behavioural economics, and sales studies to help you create win-win relationships. I’m Your host, Liston Withe rill, and I’m pleased to welcome you to Modern Sales.Welcome to Modern Sales. I’m your host, Liston Withe rill, and in today’s episode we’ll be covering the key differences between selling products and selling services and what to do to make it easier for buyers to buy your services. I Already gave away the punchline here. The key difference between them is how tangible they are, but what can a blender and a viral video teach us about the difference between the two? That’s coming up after the short break.Will it blend? That is the question. Blender had a smash viral video series on YouTube when it launched, Will It Blend, which I just played for you, so that’s the property of Blender. It’s a series of really short videos hosted by CEO, Tom Dickson. The idea is simple. Tom starts with a gadget, like an iPhone, or an iPad, or an Amazon echo, or a golf ball even, and he sticks it in the blender, and he turns on the blender. As the title implies, you will very shortly find out if it blends in less than two minutes.I’m going to take a wild guess here and say you probably couldn’t do this kind of video with a service. I know that for me a video about sales would be pretty boring. It’s largely about context and conversation and highly process oriented, which is why I like podcast rather than videos, but a blender, it’s tangible. Sales information and coaching, not so much, which brings us to the big difference between selling services and selling products. Selling services is hard, because buying services is hard.Now, when we compare how products are tangible and services are less so, there are six major dimensions I want to cover here. The first is demonstration. So, going back to that Blender example, products are really easy to demonstrate. I can stick anything in that blender and show you if it blends or not. Services, not so much. It’s fairly easy to give people a trial of a product. So, I can try out an iPad in the store before I buy it, but services are quite a bit harder to try out for free, and it really depends on your service and how it’s constructed, but the higher end, the more complex, the more you charge, the harder it’s going to be to try it out on average.The next difference is consistency. There’s little to no variability across the same product. Going back to my IKEA rugs example, all of the rugs in the bin for the rug that I ended up choosing, and I got two of them, are green rugs with a pattern and they all look almost identical, so close that I didn’t even bother to look at what the rugs looked like. They were all rolled up and wrapped up, and I just grabbed two, stuck them in my cart, and then checked out. Services, on the other hand, are provided by people, and people are messy. There’s also the difference in incremental changes. I can always buy five more seats to my project management software, but it’s much harder to buy a 5% better outcome in a software development engagement. With products it’s easy for me to adjust up or down by a little bit more or by a little bit less, but with services, not quite as easy, again, depending on what your service is.Then there’s definition. A product typically has well-defined boundaries and functionality. Services though aren’t as clear, which means it can be really difficult to explain a service and for someone to really get it. Then there’s the ease of purchase. Products are usually very easy to buy. Just think about Amazon. I don’t need to talk to anybody. I can go do my own research. It’s totally self-service, while services usually require greater commitment and effort on the part of the buyer.Now, all of this means two things. The first thing is that buyers of services must trust sellers of services, since services are far less tangible. They require more of a leap of faith. When I buy a rug at IKEA, I know exactly what I’m getting and exactly what I’m not getting. So, that’s the first difference is the amount of trust required. The second big difference in selling or buying services is that buyers of services take on significant risk. As a result of the deficit in trust, buyers will often feel that they’re in a riskier position when they’re buying services. The less clear, more expensive, and more impact the service, usually the larger the risk. So, what do we do about it?Well, there are three concrete actions we can take to make selling services just a little bit easier by addressing making buying services easier, and the first is making the definition of your service more concrete. Number two, improve your path to trust. And number three, alter the risk equation. Now, let’s turn to neuroscience for a second. You’ve probably heard of learning styles before or at least you’ve heard someone say something like, “I’m a visual learner,” or, “I’m an auditory learner.” What they’re referring to is Neil Fleming’s BARK modeller stands for visual, auditory, read/write, and aesthetic, which is to say different sensory modes of learning something. Now, the learning styles model is one of the biggest myths in psychology and neuroscience. You can go check it out. I’m not going to cover why it’s a myth here. But we do know a few things about the way people learn. One of them is it’s easier to learn about something that we have prior experience with. So, if we think about, quote unquote, visual learning for a second, we understand how models work. We understand how shapes relate to each other, and there are rules for how we perceive them. So, using models to explain our services may be really helpful, because people have prior experience with models. Models have embedded meaning in them. So, we’re not having to build that from scratch.The second thing is learners have preferences in how they like to learn. So, some people prefer to watch YouTube. Other people prefer to read articles or books. Other people still like to listen to podcasts, and other people like to write long papers in order to learn something. The third thing we know about learning is that multimedia learning tends to be more effective, but it’s not because of all the different learning styles. It’s because it tends to engage the learner more. So, what does this all mean for selling products versus services? Well, let’s take a look at our multi modal learning and turn back to the products and services question.Products are almost always visual and aesthetic, which is to say we can see them and we can interact with them, and they often include a read/write component as well and many times can be communicated through sound. With services, it’s far less concrete than that. With services, they’re definitely less visual. That’s why we often see on services related websites a lot of process charts and kind of a one, two, three step model to show how things work, but it’s mainly reading. I’m not demonstrating visually how it works, except by simple drawings. It’s not really demonstrating the whole thing in the way that I can go see or touch a rug. There’s another challenge here. One place that a high end, highly customised service can really fall short is with prior experience. Often buyers have no good model to base a service on. They don’t have that previous experience. All of this makes a sale a lot harder. So, what to do about it?Well, the first thing we can do is to make the definition of the service more concrete. I’m conducting research on professional services sales right now as we speak and as I record this episode. In one of my one-on-one interviews, the chief innovation officer of a prominent software development firm said to me, “What I sell is vaporware. It doesn’t exist yet.” To that I say, “Yes and no.” What’s true is that the more custom your solution, the more difficult it will be to sell and the more abstract it will be in. By definition, the more abstract, the less relatable and the harder to understand for your client. Translation, right? It’s super hard to describe.One thing you can do is to begin to make your service more concrete. Now, there are lots of ways we can do this, but one is by using models, so showing people through simple drawings that especially include known concepts and maybe bridge together several different types of concepts into a model that helps our client understand what it is that we do. Another is through metaphor. Another is by giving examples of the type of work do and for whom or even analogies to other products or services. Now, embedded in here is a tighter definition of our service may also include a specialisation, or a specific type of customer, or a specific type of client that we help. Now, that may or may not be in the cards for you, but the tighter we get on the type of thing that we do, the outcomes it creates, and for whom, the easier it will be to understand and the tighter that definition.The second thing we can do is to increase our path to trust. How do you make yourself more trustworthy? Well, there are things you can do both before and after you’re engaged with someone in the sales process, and I would say a significant amount of the trust building should happen before you’re engaged. One of the things you can do is just cause someone to think. Right? Challenge the way they’re thinking about something, shake up the things that they’re taking for granted or that they presuppose, and all of a sudden it’ll create trust, because it’s showing that you have ideas that are worth thinking about to them.Second thing is creating a brand. Now, in every sale there are multiple vehicles for trust, and two of the big ones obviously are your brand’s reputation or what people think about your brand in the marketplace. The second one is what people think about you or what people think about the person doing the selling. So, the stronger the brand we have, the more likely it is that people will trust us. The third thing we can do, begin setting expectations. Right? Early on we want to show people that we can deliver on expectations that we create.I think a really, really big thing for any service provider is to create and share free content. It can achieve all of the things I’ve already talked about. You know, one of the ways I do that is through this podcast. If you’re listening to this right now, you probably trust me at least a little bit, and the longer you listen, that will only grow over time. Another is through my newsletter, which is linked in the show notes, and you can also check out Liston/newsletter. I believe that sales of a highly customised and especially a premium price service can only happen with a lot of trust built up prior to engagement.Now, especially if you want to start to create a professional sales organisation, you really have to have a model for what you do at your firm and how it’s different. And it needs to be clear enough for other people to describe it on your behalf, A.K.A. employees. So if you ever want to get to a place where sales are happening outside of the owner of the firm, you really do need to have clarity and content around what it is that you do. Even if you’re doing outbound sales, people are going to check you on LinkedIn. They’re going to check you on your website. They’re going to look at the content you have. So, I do believe that content is a huge, huge requirement if you’re planning on doing trust-building at scale.The next thing is after you’re engaged, you’re setting expectations and then you’re exceeding them on a regular basis. So, if you promise that you’ll be in a place and you’ll have a meeting, you should have a great meeting. Right? And part of how you do that is to do your homework. You show up, you know something about your prospect, you know something about what they might want to do, especially you know something about their persona. People like them at companies like theirs probably have a set of problems that you’ve encountered before. Show them that you understand them by asking thought provoking questions.The next thing you can do is to act against your own self interest. This came up in my Buyer Insights episode with Deena Maharajah. You can go back and listen to it. One of the things she said is that if you can articulate an area where you’re not especially strong or be honest about a risk that your client takes on, it builds trust, because it lets your buyer know that you’re looking out for their interests, not just your own. Now, this can be a really scary thing to do, because it comes with some risk on your part, but what I would say is it’s also one of the best ways to be honest, to show people that you’re not just in it to make the sale. You actually do want to fit, and that’s going to increase the likelihood of trust-building.The next thing you can do is alter the risk equation. You know, the other side of trust is risk, meaning the less your client trusts you, the more risk they feel that they’re taking on. I mean, let’s be honest, they’re right. So, how can you alter the risk equation? Well, you can make the initial project smaller. That’s the main thrust of what I’d like you to think about. You can make it smaller by making it less expensive. It can take less time. It can involve less people. It can come with less impact. That will be part of the trade off.In a separate Buyer Insights episode with Ariel Office, she mentioned this idea of a proof of concept or entry level project. So, if you have longer term engagements that are very expensive and require a lot of resources on the part of your client, my question to you would be what is something that you can do relatively quickly at a relatively lower price? Extra bonus points if it’s low enough that someone can just put it on their own credit card without an approval process. But if you can do that, you’re going to start to accelerate the trust that you’re building, because you’re reducing their risk. After you deliver that project, your client will have much more data to form an opinion about you with. Right? Some buyers are going to require a proof of concept, but it’s a good way to show that you can do a mini project and get some results, so make the initial project smaller. That’s one way to reduce risk.Another way to reduce risk is to give some kind of a guarantee. Now, obviously this really depends on your type of service, but a few types of guarantees that I see all the time, a performance guarantee, a satisfaction guarantee, we just will make sure that you’re happy with what we do, a delivery or quality guarantee. Now, if you’re selling a high price service with a direct impact on cost savings or revenue generation, a guarantee can be really valuable and it can be really, really persuasive and trust-building. I’ve talked to several people who offer a guarantee on let’s say cost savings, and cost savings is one I believe that’s a little bit easier than revenue generation, because you have much more control over the outcome, but that’s the next thing you can do is offering a guarantee. Now, of course, it’s worth noting this becomes a greater risk for you, but that’s kind of the whole point. Right? You’re shifting the risk. You’re not totally reducing it. You’re shifting a lot of it from the client to you, making them more likely to trust you as you take on a greater share of the risk yourself.Now, let’s just wrap up here with some key takeaways. So, the key difference between products and services is that products are tangible. Services or not. We learn best when we’re engaged in multiple ways with things that we can see, touch, hear, interact with, and read or write about, and especially things we’re familiar with already. Selling services is more abstract than that, making it difficult to learn about them or teach them, which makes buying services much more difficult, which in turn makes selling services more difficult. The key difficulties this poses are in demonstration, trial, consistency, incremental changes, definition, and ease of purchase. This shifts a lot of the risk onto our buyers and requires a greater amount of trust building on our part.Three ways that we can take action to make selling services a little less complex. Number one, get clarity on the definition of your service, what it is and what it’s not. Number two, accelerate trust-building. And number three, reduce your client’s risk in doing business with you. Begin to get clearer about how you explain your services and tighten the definition of what you do and for whom, as well as what you don’t do and who you don’t work with. Accelerate trust building before and after you engage in the sale. Before, you can use content, create a solid brand, and challenge your prospect’s thinking and what they take for granted. After, set expectations, do your research on them, ask great questions, and occasionally act against your own self interest. Finally, you can alter the risk equation. Make your entry project smaller and less expensive. Give a guarantee of some kind or do a proof of concept.That’s it for this episode of Modern Sales. Next week, I’ll be back with the first in a brand new series of episodes all about personality. No. I won’t be uncovering and analysing my own wonderful personality. That’s boring, and I’m sure you’d agree. But we’ll be looking at personality and how useful it is in terms of selling to clients and recruiting team members to sell for us. If you aren’t already subscribed to this podcast, please do so by clicking the subscribe button.You can also get notified of all podcast episodes with some behind the scenes information, as well as other exclusive daily sales content I put out by signing up for the newsletter at Liston/newsletter. It’s totally free and it’s linked in the show notes below. If you want to see some examples of my daily posts, just go to Liston/daily. Thanks to everyone who makes this podcast possible. Juan Perez is our editor. Mary Ann Locum Is our show assistant. Our show theme and ad music, believe it or not, are both produced by me, Liston Withe rill, and show music is by Logan Nickle son at Music For Makers. Thanks so much for listening. I’m Liston of Serve Don’t Sell, and I hope you have a fantastic day.

Selling products or services. Which is better? Something tangible that a customer can touch and see? Or something intangible?

Actually, this isn’t the best question to ask when choosing what you will offer. The best question to ask first is, “What problem can I solve or solution can I offer?” Customers do not buy a product or a service. They buy a solution to a problem, a met need or desire, or a an improvement in an area of their lives. They buy the outcome. They buy the transformation.

Whether you’re selling a product, service or both, you must translate the features of your offering into a clear benefit for the consumer, by saying I offer {this product} that has {this feature} which will {meet this need or solve this problem}.

Advantages of Selling a Product

Goods have physical specifications and attributes, so customers can easily compare products to decide what’s best for them. Products offer a pretty concrete, visible solution to customers’ problems. When you sell products, you sell identical versions to your customer base, so you don’t have to come up with a big variety of different items. Even with advanced or improved models, the basic product remains the same. Because your offering is physical, you can describe the product, the features, and the benefits very easily. Your customers know exactly what they are getting, which minimises risk. And because most products are returnable, customers are more willing to trade their money for your problem-solving product.

Disadvantages of Selling a Product

Selling products requires money and space up front. Storing your inventory can be a challenge, especially if you have a lot of product to sell. You also need to have enough product to fill orders and meet demands, which means in addition to space, you have to invest money on products before you can sell them. This is especially true if you manufacture goods or buy them for resale. When you sell physical products, you also encounter shipment costs, damage losses, and theft, so it is important that you expect to pay for these extra expenses.

Advantages of Selling a Service

When you sell a service, you sell something untouchable. The beauty of this is that you can customise your service to meet a variety of needs or solve problems that pertain to specific customers. You can also give trial offers, or easily offer discounts without losing money (such as money you may have invested in a product). If the customer does like the service or it doesn’t work for them, then you don’t have to deal with return shipment costs and re-storing items, as with a physical product. Services require little to no financial investment, and no inventory storage space.

Disadvantages of Selling a Service

It can be difficult to describe your service to prospects, especially if customers have a hard time visualising what you do or how it can help them. You must counter this by being very specific in how you can help, and how you offer value. Customers may express more reluctance when buying a service, because unlike a product, they can’t evaluate it before they use it, and services can usually not be returned. Testimonials (as many as possible!), social proof, and word of mouth help ease potential customers’ minds that your service is worth the time or monetary investment.