Course: SLF 125 Business Planning and Startup

Reading

Products and Services
Products and Services
Credits
Adapted from Business, Boundless Business Open Textbook, Chapter 7 Small Business and Enterprise
www.boundless.com/business
Creative Commons Attribution-ShareAlike 3.0 Unported License

Production Businesses (that produce “things”)

When developing products, it is important for entrepreneurs to recognize that a great many new products fail. Depending on definitions used for products actually introduced, failure rates generally range between 20 percent and 30 percent, but have been as high as 80 percent. Of more concern than the level of failure are the reasons for failure. Possibilities include: poor quality, inability to produce products in a timely manner, technical problems, bad timing, misunderstanding the consumer, actions by competitors, and misunderstanding the environment.

Small production businesses generally require a great deal of capital (money) to start the business and produce the inventory required. Production businesses can also involve transportation costs, and possibly even an extensive organizational system to market the products to retailers that will sell the product (if the entrepreneur is not involved with directly selling the product to the consumer).
Service Businesses (that do "things")

Service products are reflected by a wide variety of industries—utilities, barbers, travel agencies, health spas, consulting firms, restaurants, medical facilities and banks are but a few. They account for nearly 50 percent of the average consumer's total expenditures and 70 percent of jobs. These are some characteristics of services.

Intangible: With the purchase of a good, one has something that can be seen, touched, tasted, worn or displayed. This is not true with a service. Although one pays money and consumes the service, there may be little or even nothing tangible to show for it.

Simultaneous Production and Consumption: Service products are characterized as those that are being consumed at the same time they are being produced. (Think of a restaurant – the food is prepared and eaten as part of the same event.) In contrast, goods products are produced, stored, and then consumed. A result of this characteristic is that the provider of the service (the entrepreneur) is often present when consumption takes place. In fact, services RELY on employees and their customer service skills to “do business.”

Because service products are so closely related to the people providing the service, ensuring the same level of satisfaction from time to time is quite difficult.

High Buyer Involvement: With many service products, the purchaser may provide a great deal of input into the final form of the product. For example, in the case of a cruise, a good travel agent would provide a large selection of brochures and pamphlets describing the various cruise locations, options provided in terms of cabin location and size, islands visited, food, entertainment, prices, and whether there are facilities for children.