Defining key concepts for franchises: Products vs Services

By Gerhard van Wyk

Products and services are two closely aligned concepts and, in fact, most products have an element of service in them. However, as there is a distinct difference between them it is necessary to establish some working definitions.

Armstrong and Kotler (2005) refer to a product as a key element in the marketing offer, “…anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need”. “Services on the other hand are economic activities offered by one party to another, in exchange for money, time and effort. Service customers expect to obtain value from access to goods, labour, facilities etc, but they do not normally take ownership of any of the physical elements involved.” (Lovelock & Wirtz, 2007).

Franchises marketing products face different challenges to those promoting a service. Understanding the different challenges faced in the marketing of products and services can help franchises establish an effective approach to sales and promotions.

Some of the differences franchises need to consider as set out by Lovelock & Wirtz, 2007 (smallbusiness.chr) are:

Tangibility

Products are tangible, which means customers are able to touch and see the product before deciding to make a purchase, and factors such as packaging and presentation may influence the purchasing decision. Services on the other hand, are more difficult to promote and sell because they are not tangible. Services could, however, be made to feel more tangible by emphasising physical clues.

Relationship and value

Products are inclined to fill a customer's need or want, and this can be used in selling the product. A service on the other hand, is about selling a relationship and the value of the relationship between the buyer and seller of the service. Therefore, the customer needs to perceive the value of the service, which can be harder to communicate. To effectively communicate the perceived value, it is necessary to educate customers on how to make good choices and what to look for. To this end the seller may consider documenting performances and offering guarantees.

One vs many

Marketing products most often involve multiple products that make up the line. For example, motor manufacturers tend to market not just one car. Instead, they have a line of different models to serve the various needs of their customers.

 Services typically have a single option. It is often difficult to promote and sell the reputation of one single service over the benefits of many different products.

Comparing quality

If, for example, a customer buys a product to clean his pool, it is easy to judge the value of the product by whether or not it performs effectively. Measuring the value of a service is not so easily achieved.

Return factor

A product that does not perform as promised can be returned whereas a service is consumed as it is offered, lacking the return factor that products offer. Some service providers overcome this by offering money-back guarantees.

Intangibility

Services are intangible. In cleaning, for example, the consumer may not see the cleaning process, making it more difficult for the marketer to leave an impression.

Inseparability

The purchase, production and consumption of a service generally take place at the same time. In an educational environment the relationship between the student and the service provider, i.e. the lecturer, is very important. A student is in the lecture room before, during and sometimes after the lecture and is a factor in the nature of the service. The expectations of the consumption process must be made clearly stated. Let the student know how long the lecture will last, whether additional topics will be covered and what time the lecture will be concluded.

Non-standardisation

How consumers experience a service will vary from person to person. This should be addressed in two steps. First, identify the elements of the service that can be standardised, and then standardise them as much as possible. In this way customers are assured that their consumption experience will meet their expectations. While a customer may need to wait for a table and then wait for his meal, and while the waiting period may vary from occasion to occasion, the food quality should be the same each time. One of the reasons McDonald's is popular across the globe is that the customer knows he is getting a standard burger.

Perishability

Services are deemed “perishable” as it cannot be inventoried. Matching supply and demand is difficult and keeping systems and people “on tap” to provide a service can lead to additional and unnecessary expense, which in turn will increase the cost of the service. For this reason it is necessary that franchisees take care in timing their service offerings.

Regulation

Because services are difficult for consumers to assess, they tend to be more rigidly regulated than products. Moreover, purchasing services, such as legal representation and medical care, are particularly risky endeavours for the consumer. It is imperative that service franchises and their franchisees be aware of the regulations that guide their activities. It may even be necessary to obtain legal counsel which could increase marketing costs.

Word-of-mouth

Word-of-mouth advertising is much more influential in a service purchase than in a goods purchase. This consumer-to-consumer promotion includes Internet communications. The wise marketer will establish a web presence and encourage participation in peer-to-peer web interaction.

While marketing a service is vastly different to marketing a product, in reality, every company has a services business component, even if it is nothing more than customer service. Statistics show that over half of all new start ups, perhaps as high as 75%, provide services only with no product component. Another reality is that angel investors and venture capital groups almost never invest in services-only companies. Their perspective is that these entrepreneurs need only to sell themselves and do not require capital for product development or manufacturing. (www.caycon.com/.../products-vs-services-–-crit....).