Businesses need two basic things to succeed: a product or service that customers want to buy, and the means to deliver it to them. A business that offers only services has the advantage of lower upfront costs than a product-oriented company, but can have trouble finding ways to differentiate itself in the market. It also can be difficult to quantify the value of a service, making it harder for a business owner to justify a higher price point.
Generally speaking, goods are tangible products that are typically sold in physical stores; services include things like massage therapy and car repair. However, some businesses offer both goods and services; a tanning salon, for example, sells bronzer lotion and tanning beds. Other examples include management consulting firms, law firms and accounting companies.
While a product-oriented business may be able to distinguish itself by its brand name, a pure service business is left with only its reputation as an organization that produces a specific type of service. This is an important distinction, because it imposes different strategic management challenges.
The dominant mental image about what a business does leads to a language that constrains discussion about the business, which can make it challenging for top managers to develop truly innovative approaches to managing service businesses. Nonetheless, as the service industry continues to grow and evolve, new tool kits are being developed.
One of the most important tools is a customer analysis that helps a service business identify its customers and understand their needs and behaviors. This can help the business develop its service to meet those needs and build its brand and reputation in the market.
Another key strategy is the use of shared services, which are centralized functions that can reduce costs and improve performance by reducing the duplication of effort and improving efficiency. Examples of these services include human resources, finance and accounting, information technology and supply chain operations.
A third strategy is the use of a pricing model that enables a service business to charge more for high-value services and less for standard offerings. This can be done through a tiered pricing structure or by offering discounts for larger volumes of service. Finally, a fourth strategy is to leverage partnerships and alliances to provide a wider range of services or reduce costs. This can be done through a shared-services arrangement, a contract with a vendor or through outsourcing. This can be an effective way for a small business to expand its capabilities and reach without having to hire additional employees.