Differences between Services and Goods

 

Differences between Services and Goods

LO2 There are five essential differences between services and goods. The first is that a service is an intangible process that cannot be weighed or measured, whereas a good is a tangible output of a process that has physical dimensions. This distinction has important business implications since a service innovation, unlike a product innovation, cannot be patented. Thus, a company with a new concept must expand rapidly before competitors copy its procedures. Service intangibility also presents a problem for customers since, unlike with a physical product, customers cannot try it out and test it before purchase.

The second is that a service requires some degree of interaction with the customer for it to be a service. The interaction may be brief, but it must exist for the service to be complete. Where face-to-face service is required, the service facility must be designed to handle the customer’s presence. Goods, on the other hand, are generally produced in a facility separate from the customer. They can be made according to a production schedule that is efficient for the company.

The third is that services, with the big exception of hard technologies such as ATMs and information technologies such as answering machines and automated Internet exchanges, are inherently heterogeneous—they vary from day to day and even hour by hour as a function of the attitudes of the customer and the servers. Thus, even highly scripted work, such as found in call centers, can produce unpredictable outcomes. Goods, in contrast, can be produced to meet very tight specifications day-in and day-out with essentially zero variability. In those cases where a defective good is produced, it can be reworked or scrapped.

The fourth is that services as a process are perishable and time dependent, and unlike goods, they can’t be stored. You cannot “come back last week” for an air flight or a day on campus.

And fifth, the specifications of a service are defined and evaluated as a package of features that affect the five senses. These features are:

• Supporting facility (location, decoration, layout, architectural appropriateness, supporting equipment)

• Facilitating goods (variety, consistency, quantity of the physical goods that go with the service; for example, the food items that accompany a meal service)

• Explicit services (training of service personnel, consistency of service performance, availability and access to the service, and comprehensiveness of the service)

• Implicit services (attitude of the servers, atmosphere, waiting time, status, privacy and security, and convenience)

The Goods–Services Continuum

Almost any product offering is a combination of goods and services, we show this arrayed along a continuum of “pure goods” to “pure services.” The continuum captures the main focus of the business and spans from firms that just produce products to those that only provide services. Pure goods industries have become low-margin commodity businesses, and in order to differentiate, they are often adding some services. Some examples are providing help with logistical aspects of stocking items, maintaining extensive information databases, and providing consulting advice.

Core goods providers already provide a significant service component as part of their businesses. For example, automobile manufacturers provide extensive spare parts distribution services to support repair centers at dealers.

Core service providers must integrate tangible goods. For example, your cable television company must provide cable hookup and repair services and also high-definition cable boxes. Pure services, such as may be offered by a financial consulting firm, may need little in the way of facilitating goods, but what they do use—such as textbooks, professional references, and spreadsheets—are critical to their performance.

Product-Service Bundling

Product-service bundling refers to a company building service activities into its product offerings for

There is a major difference between goods and services based on both tangible as well as intangible factors. Goods are basically objects or products which have to be manufactured, stored, transported, marketed and sold. Lays chips, BMW, Adidas are some companies manufacturing goods.

Services on the other hand are output of individuals and they can be a collective or individualistic action or performance by an individual. For example a barber or a chartered accountant are giving individual services. Airlines on the other hand have airplanes which is a product but travelling by airplanes is a service (airlines are one of the most competitive service sectors today).

Thus the difference between goods and services is based on tangibility. Where goods are tangible in nature, services are mostly intangible. The classic rules which defined services were intangibility, heterogeneity, perishability and variability. However, although the old rules are applicable even today, several new rules have been added to define the difference between goods and services.

The below mentioned 8 points help you in noticing how goods and services differ.

Ownership is not transferred

– When buying a service, the service ownership is not transferred to the end customer. If you buy a car then the car is yours. But if you buy a ticket for an airline, then the airline is definitely not yours.

Intangibility

– How do you measure service? In a restaurant, the dish can be measured, but the efforts gone in making the same dish by two different chefs cannot be measured from the customer end. Same goes for large service corporates like Accenture and Infosys. The time and effort gone for giving service to the customer is intangible. Both ownership and intangibility are old school differences between goods and services.

Involvement of customer 

– When comparing the difference between goods and services we have to look at the involvement of customer as well. In services involvement of customers is much more than in products. For example – ATM’s are services wherein customer has to use the machine. The same goes for vending machines as well as for self service restaurants. Today ice cream chains like Hokey pokey and food chain like Subway have more than 50% involvement of customer where the customer gets to decide the ingredients they want in their ice cream / Sub.

Quality

– In case of products, mass manufacturing is common. And mass manufacturing means uniformity. However, services involve a lot of manual labour due to which the quality may vary each time. Uniformity in services is a factor which each service owner tries for. For example – The major challenge of food chains like Subway, Pizza hut and dominos is to give the same quality over and over again, whereas in local restaurants the quality of food may vary time to time from the same restaurant.

Evaluation of services is tougher

– As quality varies from time to time and the involvement of customer is maximum, evaluation of different services becomes tougher. For example – HDFC has more number of ATM than SBI. Thus we can evaluate that HDFC service is better because they have more reach to the end customer. But how do we evaluate how a barber cuts your hair.

Inventories are absent

– Production and consumption of services happens at the same time. This does not mean that the raw material is not present to provide the service. For example in a restaurant, a dish is made only after you order it. The raw material and the chef might be present. But the production does not begin unless and until there is a customer to consume the service.

Time is very important in services

– Because inventories are absent in services, and because production and consumption is at the same time, time is a very important difference between goods and services. The keyword here is “delay”. There should be no delay in providing the service. Thus the cab should arrive on time, the food should be prepared by time and the trains should run on time. Because time is important.

Thus the difference between goods and services is based on many different factors. These factors are become more and more acute as the services sector rises in demand.