Product and Service | ICSE Class 10 Commercial Studies Notes

This note covers the meaning of a product and of a service, the difference between them, the classification of products into consumer and industrial goods, the special nature of services, and examples that show how the two are told apart in marketing.

What is a product?

From the customer's point of view, a product is a bundle of utilities, which is purchased because of its capability to provide satisfaction of certain needs. A buyer buys a product or service for what it does for her, or the benefit it provides to her.

In the marketing mix, product means goods or services or "anything of value", which is offered to the market for sale.

The concept of product relates not only to the physical product but also to the benefits offered by it from the customer's viewpoint. For example, toothpaste is bought for whitening teeth and strengthening gums.

The concept of product also includes the extended product, or what is offered to customers by way of after sales services, handling complaints and availability of spare parts. These aspects are very important, particularly in the marketing of consumer durables such as automobiles and refrigerators.

Definition: product. A product is a bundle of utilities, goods or services or anything of value offered to the market for sale, bought for the benefits it provides in satisfying a need.

A customer may seek three types of benefits from the purchase of a product: functional benefits, psychological benefits and social benefits.

The purchase of a motorcycle provides the functional utility of transportation, but at the same time satisfies the need for prestige and esteem and provides social benefit by way of acceptance from a group.

Because a product is a bundle of utilities, all these aspects should be considered while planning for a product. A marketer who plans only the physical object and ignores the benefit and the extended offer plans only part of the product.

What is a service?

By services we mean those intangible activities and benefits which are offered for sale. Examples are dry cleaning, watch repairs, hair cutting, postal services, and the services of a doctor, an architect or a lawyer.

Services are one of the three categories of consumer products classified on the basis of durability, the other two being durable products and non-durable products.

Services are placed in this classification because, like goods, they are bought to satisfy personal needs, but they differ from goods in being intangible activities rather than tangible objects.

Definition: service. A service is an intangible activity or benefit offered for sale, such as dry cleaning, watch repairs, hair cutting, postal services, or the work of a doctor, an architect or a lawyer.

Money paid for services represents the price of those services, just as money paid for a product is its price. The fare for a transport service, the premium for an insurance policy and the fee to a doctor for medical advice are all prices of services.

Services are also among the things that can be marketed, alongside physical products, ideas, persons, places, events and information. Marketed services include insurance, health care, business process outsourcing, security, financial services such as investment, computer education and online trading.

How does a product differ from a service?

Tangible object or intangible activity

The central difference is that a product is a tangible object that can be seen, stored and used over time, while a service is an intangible activity or benefit that is offered for sale.

A refrigerator, a radio, a bicycle and a sewing machine are tangible consumer products which normally survive many years. Dry cleaning, watch repairs and hair cutting are intangible activities.

Storage and the extended offer

A second difference lies in storage. Goods can be produced and stored until they are needed, and warehousing creates time utility in them because there may be a difference between the time a product is produced and the time it is required for consumption.

A service, being an activity, is performed when it is required and cannot be stocked in this way.

A third difference lies in the extended offer. For durable products, after sales services, guarantees, handling of complaints and availability of spare parts form part of what the buyer receives. In a service, the activity itself is the whole offer.

Note: both can be marketed. Physical products (a motorcycle, a mobile phone, footwear, a television, a refrigerator) and services (insurance, health care, security, computer education) are both marketed, so the ideas of marketing apply to each.

How are products classified?

Products may broadly be classified into two categories: consumer products and industrial products. Consumer products are those purchased by the ultimate consumers or users for satisfying their personal needs and desires, such as soap, edible oil, eatables, textiles, toothpaste and fans.

Industrial products are those used as inputs in producing other products, such as raw materials, engines, lubricants, machines and tools.

Consumer products are further classified in two ways. On the basis of shopping efforts involved, they are convenience products, shopping products and speciality products. On the basis of durability, they are non-durable products, durable products and services.

Draw a tree with "Products" at the top, branching into "Consumer Products" and "Industrial Products". Under Consumer Products draw two further branches: "Durability Basis" leading to Non-durable, Durable and Services, and "Shopping Efforts Involved" leading to Convenience Products, Shopping Products and Speciality Products.

Convenience, shopping and speciality products

Convenience products are those consumer products which are purchased frequently, immediately and with least time and effort. Examples are cigarettes, ice creams, medicines, newspaper, stationery items and toothpaste. These products have low unit value and are bought in small quantities.

Shopping products are those consumer goods where buyers devote considerable time to compare the quality, price, style and suitability at several stores before making the final purchase. Examples are clothes, shoes, jewellery, furniture, radio and television.

Speciality products are those consumer goods which have certain special features because of which people make special efforts in their purchase. These have reached a brand loyalty of the highest order with a significant number of buyers.

A rare collection of artwork or of antiques may make some people willing to spend a lot of shopping effort and travel long distances.

The demand for these goods is relatively inelastic: even if the price is increased, the demand falls only a little. Loyal buyers behave the same way with a particular hair-cutting saloon, restaurant or tailor.

Durable, non-durable products and services

Non-durable products are consumer products normally consumed in one or few uses, such as toothpaste, detergents, bathing soap and stationery products. From the marketing point of view, these generally command a small margin, should be made available in many locations and need to be heavily advertised.

Durable products are those tangible consumer products which normally survive many years, such as a refrigerator, radio, bicycle, sewing machine and kitchen gadgets.

These are generally used for a longer period, command a higher per unit margin, and require greater personal selling efforts, guarantees and after sales services on the part of the seller.

Services, the third category, are the intangible activities and benefits offered for sale described above. Placing services beside durable and non-durable goods shows that the same classification covers both a product and a service.

What are industrial products?

Industrial products are those products which are used as inputs in producing other products. Examples are raw materials, engines, lubricants, machines and tools. In other words, industrial products are meant for non-personal and business use for producing other products.

The market for industrial products consists of manufacturers, transport agencies, banks and insurance companies, mining companies and public utilities.

Three categories of industrial goods

Industrial goods are classified into three major categories. Materials and parts include goods that enter the manufacturer's products completely.

These are of two types: raw material, including farm products like cotton, sugar cane and oil seed and natural products such as minerals (crude petroleum, iron ore), fish and lumber; and manufactured material and parts, again of two types, component materials like glass, iron and plastic, and component parts such as tyre, electric bulb, steering and battery.

Capital items are goods used in the production of finished goods. These include installations like elevators and mainframe computers, and equipment like hand tools, personal computers and fax machines.

Supplies and business services are short lasting goods and services that facilitate developing or managing the finished product. These include maintenance and repair items like paint and nails, and operating supplies like lubricant, computer stationery and writing paper.

Why does the difference matter in marketing?

The difference between a product and a service shapes the decisions a marketer takes. For a product, the important product decisions include deciding about the features, quality, packaging, labelling and branding.

Packaging is important not only for protection of the products but also serves as a promotional tool, and sometimes the quality of the product is assessed by buyers from the packaging.

For services, the offer is the activity itself, so the marketer has to communicate the benefit and the quality of the person or firm providing it. A product can usually be seen and tried before it is bought; a service usually cannot.

The distinction also appears in the choice of promotion tools. Consumer goods firms may rely more on advertising through mass media, while industrial goods firms may rely more on personal selling.

What combination is used depends on factors such as the nature of the market, the nature of the product, the promotion budget and the objectives of promotion.

Note: services in the promotion mix. Advertising messages tell people about products such as toilet soaps, detergent powder and soft drinks, and about services such as hotels and insurance policies, so the same tools of promotion serve both.

What examples show a product and a service side by side?

Everyday buying gives many pairs. A motorcycle, a mobile phone, footwear, a television and a refrigerator are physical products; insurance, health care, security, computer education and online trading are services.

Other pairs make the same point. A toothpaste is a product bought for whitening teeth and strengthening gums, while a doctor's advice is a service for which a fee is paid.

A refrigerator is a durable product requiring after sales service, while dry cleaning and watch repairs are services. A newspaper is a convenience product, while postal services are a service.

How do you tell a product from a service in practice?

Four questions settle most cases. First, can the offer be seen and handled? A refrigerator, a bicycle or a sewing machine can be; dry cleaning, hair cutting and a lawyer's advice cannot.

Second, can it be kept in stock until it is wanted? Goods can be produced and stored, and warehousing creates time utility in them; a service is performed when it is required.

Third, what does the buyer receive beyond the object? For a durable product the buyer also receives guarantees, after sales service and spare parts; in a service the activity itself is the whole offer.

Fourth, how is the offer promoted? Products lean on design, quality, packaging, labelling and branding, while a service has to communicate the benefit and the quality of the person or firm providing it.

Apply the questions to a restaurant meal. The food served is a tangible product, but the cooking, serving and courtesy are intangible activities offered for sale, so the meal is a product and a service together.

Apply them to a watch repair in which no part is replaced: nothing tangible is sold, only the activity of repairing, so it is a service.

Worked examples

Worked example 1. A shop sells a refrigerator for ₹28,000 and also runs a watch repair counter that charges ₹250 per repair. In one month it sells 12 refrigerators and carries out 90 repairs.

The owner wants to know which offer brings in more revenue and how the two offers differ in nature.

Answer: Refrigerator revenue = 12 × ₹28,000 = ₹3,36,000. Repair revenue = 90 × ₹250 = ₹22,500. The refrigerator brings in far more revenue.

In nature, the refrigerator is a durable product, a tangible good that normally survives many years and needs guarantees and after sales service; the repair is a service, an intangible activity performed when the customer needs it and which cannot be stocked.

The owner should treat the two as different offers: stock and display the refrigerators, and schedule the repair work as it comes.

Worked example 2. A general store sells toothpaste at ₹95 a tube and newspapers at ₹6 a copy. In a week it sells 40 tubes and 700 copies. The owner is deciding how to push each item.

Answer: Toothpaste revenue = 40 × ₹95 = ₹3,800. Newspaper revenue = 700 × ₹6 = ₹4,200. Both are convenience products, purchased frequently, immediately and with least time and effort, with low unit value and bought in small quantities.

Because they are non-durable products, they generally command a small margin, must be available in many locations and are heavily advertised by their makers.

The owner should keep both in easy reach near the counter and rely on quick sales of many units rather than on personal selling.

How do you classify a product you are given?

Classification is a matter of asking who buys the product and why. If the buyer is an ultimate consumer satisfying a personal need or desire, the item is a consumer product; soap, edible oil, eatables, textiles, toothpaste and fans are examples.

If the buyer is a firm using the item as an input to produce something else, it is an industrial product; raw materials, engines, lubricants, machines and tools are examples.

Within consumer products, the next question is how much shopping effort the buyer puts in. Bought frequently, immediately and with least time and effort, the item is a convenience product.

Bought after comparing quality, price, style and suitability at several stores, it is a shopping product. Bought with special effort because of special features and the highest order of brand loyalty, it is a speciality product.

Within industrial products, the question is how the item enters the buyer's production. Goods that enter the manufacturer's products completely are materials and parts. Goods used in the production of finished goods are capital items.

Short lasting goods and services that facilitate developing or managing the finished product are supplies and business services.

1. Ask who buys the item: an ultimate consumer for personal use, or a firm for business use.
2. If a consumer buys it, ask how much time and effort the purchase takes: least effort means convenience, comparison at several stores means shopping, special effort means speciality.
3. If a firm buys it, ask how it enters production: completely means materials and parts, used to produce finished goods means capital items, short lasting help means supplies and business services.
4. Check the durability of a consumer item: consumed in one or few uses means non-durable, surviving many years means durable, an intangible activity means a service.
5. Name the category and give one example from the same group to justify the answer.

Worked example 3. A firm buys cotton worth ₹40,000, a mainframe computer for ₹6,00,000, paint and nails worth ₹3,000 and lubricant worth ₹2,000 in a year. Classify each purchase under the three categories of industrial goods.

Answer: Cotton enters the manufacturer's product completely, so it is materials and parts (raw material, a farm product). The mainframe computer is used in the production of finished goods, so it is a capital item (an installation).

Paint and nails are maintenance and repair items, and lubricant is an operating supply, so both are supplies and business services. Total purchases = ₹40,000 + ₹6,00,000 + ₹3,000 + ₹2,000 = ₹6,45,000.

The firm should budget the computer as a long-term capital item and the paint, nails and lubricant as recurring supplies.

Worked example 4. A customer buys a motorcycle for ₹85,000 and pays ₹1,500 for a service at the workshop after a year. Explain the benefits the customer seeks from each payment.

Answer: The motorcycle is a product, a bundle of utilities bought for the benefit it provides.

It gives functional benefit by way of transportation, psychological benefit by satisfying the need for prestige and esteem, and social benefit by way of acceptance from a group.

The ₹1,500 is the price of a service, an intangible activity offered for sale, and it keeps the motorcycle in use. Total spent = ₹85,000 + ₹1,500 = ₹86,500.

The customer should judge the motorcycle by all three benefits, not by the physical object alone.

What are the advantages and limitations of knowing this difference?

Advantages

For the seller, the advantages of classifying an offer correctly are practical. A durable product commands a higher per unit margin and justifies greater personal selling effort, guarantees and after sales services.

A non-durable product commands a small margin, so it should be made available in many locations and heavily advertised. A service cannot be stocked, so the seller must plan the capacity to perform it when the customer needs it.

For the buyer, the advantage is a clearer idea of what is being paid for.

The price of a product buys the object and its extended offer; the price of a service buys the activity, such as the fare for a transport service, the premium for an insurance policy or the fee to a doctor for medical advice.

Limitations

The line between the two is not always sharp. A restaurant meal, or a car service that fits new spare parts, combines a tangible object with an intangible activity, so a single label may not fit.

Many products also carry a service with them, such as the after sales service of a refrigerator. And the marketing response described for each category is a general guide, not a rule that fits every firm.

Glossary

• Product: A bundle of utilities, goods or services or anything of value offered to the market for sale to satisfy a need.
• Service: An intangible activity or benefit offered for sale, such as dry cleaning, watch repairs or a doctor's advice.
• Consumer product: A product purchased by ultimate consumers or users for satisfying their personal needs and desires.
• Industrial product: A product used as an input in producing other products, meant for non-personal and business use.
• Convenience product: A consumer product purchased frequently, immediately and with least time and effort, having low unit value.
• Shopping product: A consumer good for which buyers compare quality, price, style and suitability at several stores before buying.
• Speciality product: A consumer good with special features that make buyers spend much time and effort, with relatively inelastic demand.
• Durable product: A tangible consumer product which normally survives many years and needs guarantees and after sales services.
• Non-durable product: A consumer product normally consumed in one or few uses, commanding a small margin and needing heavy advertising.
• Extended product: The after sales services, complaint handling and spare parts offered to customers along with the physical product.
• Capital items: Industrial goods used in the production of finished goods, such as installations and equipment.
• Supplies and business services: Short lasting industrial goods and services that facilitate developing or managing the finished product.

Common errors and misconceptions

• Misconception: A product is always a physical object. Correct: Product means goods or services or anything of value offered to the market, and includes the benefits and the extended product.
• Misconception: Services are not products. Correct: Services are one of the three categories of consumer products on the basis of durability, and are offered for sale like goods.
• Misconception: A service can be stored like a good. Correct: A service is an intangible activity or benefit; warehousing and storage create time utility in goods, not in services.
• Misconception: All consumer products are classified only by durability. Correct: They are classified both by durability (durable, non-durable, services) and by shopping efforts (convenience, shopping, speciality).
• Misconception: Industrial products are bought for personal use. Correct: Industrial products are used as inputs in producing other products and are meant for non-personal and business use.
• Misconception: A refrigerator and dry cleaning belong to the same category. Correct: A refrigerator is a durable product; dry cleaning is a service, an intangible activity offered for sale.
• Misconception: Speciality products have elastic demand. Correct: Their demand is relatively inelastic; a rise in price reduces the demand only a little.

Exam-style questions with model answers

Q1. Define a service and give two examples. [2 marks]

1. A service means those intangible activities and benefits which are offered for sale.
2. Examples are dry cleaning and watch repairs; hair cutting, postal services and the services of a doctor, an architect or a lawyer are other examples.

Q2. State any two points of difference between a product and a service. [2 marks]

1. A product is a tangible object that can be seen and handled, such as a refrigerator or a bicycle, while a service is an intangible activity or benefit offered for sale, such as dry cleaning.
2. Goods can be stored in warehouses to create time utility, whereas a service is an activity performed when it is required and cannot be stocked in this way.

Q3. Explain convenience products and shopping products with one example of each. [4 marks]

1. Convenience products are those consumer products which are purchased frequently, immediately and with least time and effort.
2. They have low unit value and are bought in small quantities; examples are cigarettes, ice creams, medicines, newspaper, stationery items and toothpaste.
3. Shopping products are those consumer goods where buyers devote considerable time to compare the quality, price, style and suitability at several stores before making the final purchase.
4. Examples are clothes, shoes, jewellery, furniture, radio and television.

Q4. Distinguish between consumer products and industrial products, giving two examples of each. [4 marks]

1. Consumer products are purchased by the ultimate consumers or users for satisfying their personal needs and desires; examples are soap, edible oil, toothpaste and fans.
2. Industrial products are used as inputs in producing other products and are meant for non-personal and business use; examples are raw materials, engines, lubricants, machines and tools.
3. The market for industrial products consists of manufacturers, transport agencies, banks and insurance companies, mining companies and public utilities, whereas consumer products are bought by ultimate users.
4. Industrial goods are further classified into materials and parts, capital items, and supplies and business services.

Q5. Explain the three types of benefits a customer may seek from the purchase of a product, using a motorcycle bought for ₹85,000 as the example. [5 marks]

1. A buyer buys a product or service for what it does for her, or the benefit it provides to her; the motorcycle costs ₹85,000.
2. The first type is functional benefits: the purchase of a motorcycle provides the functional utility of transportation.
3. The second type is psychological benefits: the same motorcycle satisfies the need for prestige and esteem.
4. The third type is social benefits: riding a motorbike provides social benefit by way of acceptance from a group.
5. Thus all these aspects should be considered while planning for a product, since a product is a bundle of utilities.

Q6. A firm sells a refrigerator for ₹28,000 and also runs a watch repair counter charging ₹250 per repair. In a month it sells 12 refrigerators and does 90 repairs. Explain how the two offers differ, using the classification of consumer products on the basis of durability. [5 marks]

1. On the basis of durability, consumer products are classified into non-durable products, durable products and services.
2. The refrigerator is a durable product: a tangible consumer product which normally survives many years, like a radio, bicycle, sewing machine and kitchen gadgets.
3. Durable goods are generally used for a longer period, command a higher per unit margin, and require greater personal selling efforts, guarantees and after sales services on the part of the seller.
4. The watch repair counter offers a service, meaning an intangible activity or benefit offered for sale, like dry cleaning, hair cutting and postal services.
5. So the refrigerator is a tangible good that is stored and serviced over years, while the repair is an intangible activity performed when the customer needs it; the refrigerators bring 12 × ₹28,000 = ₹3,36,000 and the repairs 90 × ₹250 = ₹22,500.

Q7. Explain the three major categories of industrial goods with one example of each. [6 marks]

1. Materials and parts include goods that enter the manufacturer's products completely; raw material covers farm products like cotton and sugar cane and natural products like crude petroleum and iron ore, while manufactured material and parts cover component materials like glass and component parts such as a tyre or a battery.
2. Capital items are goods used in the production of finished goods, including installations like elevators and mainframe computers and equipment like hand tools, personal computers and fax machines.
3. Supplies and business services are short lasting goods and services that facilitate developing or managing the finished product, including maintenance and repair items like paint and nails and operating supplies like lubricant and writing paper.

Key takeaways

• A product is a bundle of utilities bought for the benefits it provides, not merely a physical object.
• Product in the marketing mix means goods, services or anything of value offered to the market for sale.
• A service is an intangible activity or benefit offered for sale, such as dry cleaning or a doctor's advice.
• Consumer products are classified by durability into durable, non-durable and services, and by shopping effort into convenience, shopping and speciality.
• Industrial products are inputs used to produce other products and are bought by manufacturers, banks, transport agencies and public utilities.
• Durable goods need guarantees and after sales service; non-durable goods need wide availability and heavy advertising.
• Speciality products enjoy the highest brand loyalty and their demand is relatively inelastic.
• Both products and services are marketed, and the same promotion tools are used for each.

Test yourself

What is meant by a product from the customer's point of view?

A product is a bundle of utilities, which is purchased because of its capability to provide satisfaction of certain needs; the buyer buys it for the benefit it provides to her.

Give three examples of services.

Dry cleaning, watch repairs and hair cutting; postal services and the services of a doctor, an architect and a lawyer are also named.

What are non-durable products? Give two examples.

Non-durable products are consumer products normally consumed in one or few uses, such as toothpaste, detergents, bathing soap and stationery products.

Why is the demand for speciality products called relatively inelastic?

Because a rise in price reduces the demand only a little: buyers with the highest brand loyalty keep making special efforts to buy them.

Name the three major categories of industrial goods.

Materials and parts, capital items, and supplies and business services.

Which two types of manufactured material and parts are named?

Component materials like glass, iron and plastic, and component parts such as tyre, electric bulb, steering and battery.

What is the extended product?

It is what is offered to customers by way of after sales services, handling complaints and availability of spare parts, and is important in marketing consumer durables.