How a business markets to consumers varies depending on whether it’s selling a product or a service. The difference involves the nature of the business’s offerings, and those providing services face unique demands for success and growth.
Product-based businesses market items that can be purchased and used by customers. The benefit to customers is that they now own what they needed or wanted. Service-based companies, on the other hand, advertise to those who need specific services that they either can’t or don’t want to do themselves. Service-based industries also differ from product-based operations in that services are intangible, perishable, and not easily separated from the service providers.
Business professionals who work in service fields, including civil engineering, advertising, rental services, the restaurant industry, home repairs, and hospitality business management, are primarily in business to offer their skills and knowledge. Any physical products they sell are incidental or secondary to the service itself.
Therefore, service-based businesses should think of their products as smooth, enjoyable experiences they offer to customers and clients. For example, if a hotel has a great reputation for clean, comfortable rooms and lots of amenities, more customers might be interested in staying there. Customers will choose the hotel with great amenities and services over another when booking a room.
To succeed in service-oriented business, students pursuing an online MBA degree should understand how service-based business management differs from the leadership responsibilities in product-based corporations.
Customer Service is the Key to Building a Strong Service Business
Great customer service is advisable for both product- and service-based businesses. Customers who want to buy a certain product can suffer through mediocre customer service to obtain what they need. But customers paying for a specific professional service can immediately move to a different provider if they feel the customer service level is unacceptable.
To retain customers, managers in service-based businesses should devote a considerable amount of time to bolstering and improving their company’s customer service. Software engineer R.L. Adams lists the reasons why this is true in his Entrepreneur.com article, “10 Reasons Why Good Customer Service is Your Most Important Metric”:
- Customer retention is far less expensive than customer acquisition. In fact, attracting new customers can cost as much as 5 times more than keeping current ones.
- Existing customers are more likely to buy from you than new customers, because they have already used your services and were happy with the results.
- Great customer service results in a reduction of problems. Poor customer service, on the other hand, can cause problems where there are none and make small problems into large ones.
- Excellent customer service improves public persona and strengthens your brand. In the absence of actual products, services are weighed almost entirely by their reputation in the marketplace.
- You’re more likely to retain your customers for longer if you continue to offer great customer service.
- Word-of-mouth advertising is the best kind of advertising. When customers are happy with a service, they will tell their family, friends, and coworkers about their positive experience.
- Employees will be less likely to leave your business to work for a competitor if their customers are treated well.
- Great customer service attracts new business partnerships and other opportunities.
- A high level of customer service conveys strong moral values and beliefs in your company’s mission.
- Service-based businesses will remain profitable for much longer if they concentrate on keeping their customers happy.
Take, for instance, a nursing home facility. People don’t want their mothers or grandmothers to live in a place with poor customer service ratings. Customer service, in this case, means the kindness and assistance provided by healthcare workers. If the management concentrates on outstanding service, more families are likely to choose the facility than its competitors.
How Service Companies Grow and Expand
In addition to customer service, outside factors also affect service-based businesses’ chances for success. To identify opportunities, service managers should remain vigilant for any potential signs of growth in their industry. Growth, for service-based businesses, often begins when a shift happens in the culture surrounding the company.
ReferenceForBusiness.com’s section on service businesses highlights 8 factors that lead to growth in the service industry:
- Increased affluence: Raised standards of living increase the demand for luxury services.
- Increased leisure time: Automation, remote working, and artificial intelligence provide more opportunities for free time.
- Changing workforce dynamics: The shift in workplace demographics places services such as childcare and housekeeping in high demand.
- Longer life expectancies: Since people are living longer, there is a higher demand for healthcare services.
- Increased complexity of technology: As technology becomes more complex, the need for repair services will continue to rise.
- Increased complexity of life: Service businesses that offer much needed legal, financial, or health assistance are in increasingly high demand as these needs arise in a rapidly changing society.
- Increased environmental awareness: The rising demand for efficient waste and recycling programs creates opportunities for expanded waste services.
- Increased numbers of available products: Advances in technology and manufacturing mean that services such as programming and engineering are in higher demand.
Strategies Designed with Service in Mind
Taking advantage of these growth opportunities demands strong leadership. Therefore, the duty of implementing strategies for the service side of any business falls on the shoulders of a company’s managerial staff. Business school students aiming for positions in management should remember that all businesses include some element of service even if the businesses exist to manufacture and sell consumer goods.
To strengthen the service element of their businesses, managers should strive to understand their profession and how the business can fend off competitors, according to Harvard business administration professor Dan R.E. Thomas’s Harvard Business Review article, “Strategy is Different in Service Businesses.”
One strategy is to examine cost. In his article, Thomas said all managers, whether they are in a product- or service-based company, can figure out ways to obtain more cost-efficient operations. Some service companies still use expensive equipment to perform a service. Where equipment is pricy, managers can find ways to cut costs and raise quality.
In addition to evaluating their costs, managers can regularly assess their company’s pricing strategy and methods of developing and testing new services, Thomas said. They can also examine potential acquisitions that will strengthen the company’s position. These are just a few of the many opportunities for good leaders to improve the way a company does business and increase the quality of the products and services.
About WSU’s Online Master of Business Administration Program
Those looking to lead service-based businesses might consider advanced education as an avenue to gaining the skills and knowledge necessary to grow their company. Washington State University’s Carson College of Business offers one of the top-ranked MBA programs in the nation. WSU offers an MBA curriculum designed to equip students with the tactics, knowledge, skills, and strategies utilized by today’s high-profile business leaders.
The program offers several MBA concentrations—marketing, finance, hospitality business management, international business, and general MBA. For more information, visit WSU’s online MBA website.
Customer Service is an Important Metric – Entrepreneur
Service Businesses – Reference for Business
Strategy in Service Businesses – Harvard Business Review