Product Based vs. Service Based: What's the Difference?
By Indeed Editorial Team
Published 12 October 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Choosing a company that matches your skill set and provides you with growth opportunities is essential when applying for jobs or making a career switch. You may want to decide if a product-based company or a service-based company is the best fit for your interests and skills. In this article, we discuss the differences between these two types of companies to help you make an informed career choice.
What is a product based vs. service based company?
A product-based vs. service based company is an organization that earns its revenue and profits either by selling products or services to people and clients globally. These companies offer their products and services in various industries such as software as a service (SaaS), technology, content marketing, electronics, e-commerce, media and communications, health care and the financial sector.
Differences between a product based vs. service based company
You can differentiate between a product based vs. service based company based on the following factors:
1. Hard skills and soft skills
Product-based companies value prior knowledge and hard skills that you have gained in a particular field. These kinds of companies often look for specialists with proven expertise related to the product they are selling. For example, a software development company is likely to hire someone who has previous coding and programming experience and can successfully create functional applications.
Service-based companies usually require a mix of both soft skills and hard skills. These companies require their employees to have specialist skills or training in a particular field like writing and soft skills such as communication, leadership and decision-making abilities. For example, a health copywriter working with a global health startup needs to have good copywriting skills and sound communication skills to understand better and discuss a client's project.
2. Target market
Product-based companies usually create products for a global audience. These companies study and target a global market and create localized versions of the same product worldwide. This strategy enables the brand to increase its reach in different geographical locations. For example, a mobile manufacturing company creates a standard mobile phone model in all major markets. However, the mobile's language settings could be in a local language to meet the local people's needs with a global product.
Service-based companies offer specific services to clients in various industries. These companies often create a custom order for every client they work with to meet their individual project criteria and requirements. These companies focus on providing the best possible service to every client without standardizing the quality of service. For example, a freelancer working with a content marketing agency may take writing and editing services depending on a client's requirements and the employment contract.
A product-based company creates products before market demand. These companies focus on creating a product that addresses their customer's problems and then markets and delivers their product as the solution. For example, a mobile manufacturing company may create an upgraded version of its previous mobile phone model even before people realize that they could benefit from advanced features.
A service-based company often delivers services after a demand arises from a customer. These companies are known for their specific services and are experienced in their domain of knowledge so that when a client approaches them, they know exactly what to expect from their services. For example, a person approaching a hairstyling company for a haircut may likely know about their services, either from previous experience or from online reviews, and can get a personalized haircut after reaching out to them.
4. Earned income
Product-based companies usually have a pre-determined fixed income that they pay to their employees. In such cases, the company decides how much salary an employee receives based on their skill set and experience. For example, a skincare brand may offer a different salary to a sales executive and a brand manager, depending upon how long they have been working with the company, their skill set and the assigned salary for each post.
Service-based companies do not operate with a pre-decided income. Service providers may charge their clients per project or monthly, depending upon the service contract. The higher the quality of the service is, the higher the earned income, irrespective of the job title, position or employee experience. For example, a graphic designer working on a website redesign may charge for the complete redesign or for every website page they create. The project's total price may also vary, depending upon other factors such as the results delivered or leads generated through the website.
5. Work culture
Product-based companies tend to have a sales and growth-oriented work culture. The employees here focus on creating the best products for the global market. These companies market themselves as the best solution provider to address the customer's problems, so the work environment here is always customer-focused. For example, a company manufacturing automobiles will have a work culture where all employees work to maximize sales by selling the vehicles to potential customers.
Service-based companies have a more flexible approach towards their work. The employees here focus more on delivering value to their clients. Service-based companies are often well-established in their knowledge domain, so the focus is on maintaining client relationships and building trust by providing high-quality services. For example, a content marketing agency will focus more on creating value-adding content marketing materials than selling these materials to achieve a sales target.
Related: What Is Organisational Culture?
A product-based company focuses on making the highest quality product for its customers. These companies operate with a mindset to make their existing customers return for more products that they create. The better the product quality, the higher the chances of building long-term relationships with customers globally. For example, a company that creates editing software may add the best features to its software application such as transitions, overlays and visual effects to ensure the best product quality for its users. If people like the software, they may purchase more products from the company in the future.
A service-based company focuses on offering the highest quality services to its clients and customers. Service-Based Companies are motivated by a desire to help their customers and clients with their individual needs more than the end goal of making huge sales or driving leads. For example, a digital marketing agency may create the highest quality marketing campaigns, content marketing materials, SEO optimization, website strategy and search engine marketing (SEM) services for its clients rather than focusing on driving more traffic or leads to the client's business or website. The client may return if the service quality is good.
A product-based company creates impactful products that offer solutions and continue to be an income source years after launch. These companies provide value to their users worldwide by creating lasting products that help customers solve their everyday problems. For example, a telecom company launches a phone that tackles overheating and comes with long battery life. This product will continue making sales for the company as it solves the customers' problems. Here, the value offered is in the product that helps solves the users' problems.
A service-based company offers value by offering quality services to its clients. These companies ensure that their clients or customers feel like their services are worth the money by offering them value through their services. For example, a business consultancy may provide the best growth strategies, revenue models, and income streams for their clients, but the service quality determines if a client returns. A service-based consultancy like this may focus on offering the best services to build client trust and relationships. If the client is happy with their services, they may consider the company for further projects.
8. Marketing strategies
Product-based companies usually invest a lot of time, money, and effort to create and perfect their marketing strategies. Effective marketing ensures that the brand attracts more visitors to its website and business. This strategy helps to build brand awareness and trust within the customers. For example, a digital watch company that heavily invests in advertising their newly launched watch through various online and print platforms is more likely to gain attention from viewers than a brand without practical marketing strategies in place.
Service-based companies are already well-established in their field of expertise. These companies do not heavily invest in marketing strategies as they usually serve a particular set of clients and audiences. This way, they can create individual marketing campaigns and messages rather than following a standard marketing tactic for all clients. For example, a mobile repair company has a target audience: people looking to repair their phones. In such cases, it is beneficial to invest in local marketing strategies such as word of mouth over running national ad campaigns.
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