Products and Services - Definitions,

Examples, Differences
Get ALL CFI Courses & Certifications for Only $97/Month!
Corporate Finance Institute

Courses & Programs

Certification Programs
Financial Modeling & Valuation (FMVA)®
Certified Banking & Credit Analyst (CBCA)™
Capital Markets & Securities Analyst (CMSA)™
Course Bundles
Machine Learning & Python
Course Catalog
Full Catalog
For Business
Account Settings
Log Out

Courses & Programs

Certification Programs
Financial Modeling & Valuation (FMVA)®
Certified Banking & Credit Analyst (CBCA)™
Capital Markets & Securities Analyst (CMSA)™
Course Bundles
Machine Learning & Python
Course Catalog
Full Catalog
For Business
 Account Settings
Log Out

Log In Get Started

Products and Services

Working definitions and key differences

What are Products and Services?

A product is a tangible item that is put on the market for acquisition, attention,
or consumption, while a service is an intangible item, which arises from the
output of one or more individuals. Although it seems like the main distinction
between the two concepts is founded on their tangibility, that is not always the
case. In most cases services are intangible, but products are not always
tangible.

One thing to keep in mind is that products and services are closely aligned. In
fact, a majority of products carry with them an element of service. For
example, when a consumerTypes of CustomersCustomers play a significant
role in any business. By better understanding the different types of customers,
businesses can be better equipped to develop buys a car, the product comes
with a lot of other service responsibilities, such as tune-up and maintenance.

Nonetheless, there is a clear difference between the two concepts, and it’s
imperative for one to understand their working definitions.

Tangible vs. Intangible

Assessing the quality of a tangible product is very easy. Since most products
are countable, touchable, and visible, a consumer can assess its durability by
examining it. A good case in point is when an individual is buying a home. The
buyer will check every nook and cranny of the house, including the attic,
basement, foundation, each individual room, and more.

In contrast, a service is not something that one can feel or try out before paying
for it. Say an individual needs a professional inspector to identify any hidden
issues before deciding to purchase a home. Just how experienced is the
inspector with regard to plumbing, roofing, and other structural matters?

In a nutshell, the client lacks sufficient knowledge about the inspector’s

expertise until the task is already in progress. The customer can read online
reviews, ask for the inspector’s credentials, as well as before and after pictures
of his previous work, but there’s no definite way of evaluating the quality of a
service until it’s rendered.

Production vs. Interaction

A potential car buyer usually checks the car’s body lines, feels the leather used
on the seats, and takes the car for a test drive before deciding whether to buy
the car or not. Since it’s a product, the buyer is aware of the specific production
line the vehicle hails from, and there are many more like it. In fact, there are
other cars identical to the one being bought.

But what about the service the car buyer receives from the car dealer? The way
a car salesperson interacts with one buyer is not the same way he interacts with
another buyer. If the car buyer is lucky, he may find a salesperson who is well-
informed, courteous, and is willing to negotiate. If he’s not, the car salesperson
might be one who lacks information or behaves in a nonchalant way.

Perishable vs. Imperishable

The best way to illustrate perishable products is to consider a restaurant owner.

If such an individual does not understand the concept of
spoilageSpoilageSpoilage literally means wastage or scrap that occurs during
the manufacturing process or is badly damaged material that is used for
processing a product and waste reduction, he risks ruining his business since
most fresh foods spoil within a few days. Another example is technology. Even
some intangible products like software become obsolete at some point.
Imperishable products include items like jewelry and automobile parts.

However, does the distinction between perishable and imperishable exist in

services? Services can be described as perishable but not imperishable. A
perishable service simply means that it’s short-lived. Ideally, such a service is
consumed as soon as it is produced. Unlike products, the service cannot be
stored for later use.

Perishable services are such as airline flights, auto repair, theater entertainment,
and manicures. If an individual purchases an air ticket for a particular day, and
then he suffers a cold and is not able to travel, the ticket expires. The perishable
attribute of some services makes it hard to balance supply and demandSupply
and DemandThe laws of supply and demand are microeconomic concepts that
state that in efficient markets, the quantity supplied of a good and quantity
demanded of that good are equal to each other. The price of that good is also
determined by the point at which supply and demand are equal to each other..

The Growing Demand for Products and Services

Based on history, it is evident that producers need to adapt or replace products

once they become outdated. Consider the way websites and e-books have
replaced paper books or how compact discs have replaced cassettes and DVDs.
In other instances, services have also become a substitute for certain products.
For instance, the streaming services offered by entertainment firms like Netflix
are now preferred by many to DVD and cable or satellite television programs.
Summary

Products are simply objects that are manufactured, stored, transported,

advertised, and then sold. While products can either be tangible or intangible,
services are intangible. The differences between products and services are
based on different factors, including tangibility, perishability, variability, and
heterogeneity.

Additional Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™FMVA®

CertificationJoin 350,600+ students who work for companies like Amazon, J.P.
Morgan, and Ferrari

certification program for those looking to take their careers to the next level. To
keep learning and advancing your career, the following CFI resources will be
helpful:

Brand EquityBrand EquityIn marketing, brand equity refers to the value

of a brand and is determined by the consumer’s perception of the brand.
Brand equity can be positive or
LogisticsLogisticsLogistics, or logistical planning, refers to the process
that a business uses in order to coordinate its supply chain operations. It
includes a wide variety
Product MixProduct MixProduct mix, also known as product assortment
or product portfolio, refers to the complete set of products and/or services
offered by a company. A mix
Substitute ProductsSubstitute ProductsSubstitute products offer
consumers choices when making purchase decisions by providing equally
good alternatives, thus increasing utility. However, from a company's
perspective, substitute products create a rivalry. As a result, businesses
 may incur high marketing and promotional costs when competing

Financial Analyst Certification

Become a certified Financial Modeling and Valuation

Analyst (FMVA)®FMVA® CertificationJoin 350,600+ students who work for
companies like Amazon, J.P. Morgan, and Ferrari

by completing CFI’s online financial modeling classes and training program!