Products and services are not separate categories, they are part of the same spectrum. So spread out.

Adding Wi-Fi turns normal products into Internet of Things products, and adding software turns then into services. So, what does this mean for firms that make products and firms that provide services?

It’s very cheap to add Wi-Fi to your products and this opens the door to all the possibilities that any other Internet of Things device can offer. But the real gamechanger is the flexibility of the software which uses that Wi-Fi link.

I mean the software running on the product, or in your HQ, or in the cloud, or even on an app on your customer’s phone. It’s not what the software runs on that’s important, it’s the ways that that software linked to your product can learn about each customer’s individual and dynamic needs. And then round up and glue together all the capabilities needed to satisfy those needs.

All this depends on the differences between products and services and how these differences are continuous differences rather than discrete differences, gradual changes rather than step changes.

The difference between products and services – why is it a spectrum?

Products tend to be tangible and fixed; services are more ephemeral, dynamic and flexible. Products tend to be physical objects, but services are immaterial. Products create value only when they get used, services are used and produced at the same time.

It seems like there’s a clear distinction. But think about an Apple iPad versus an Amazon Kindle. An iPad is more like a product and a Kindle as more like a service.

They are both tablets, but a Kindle provides a gateway to help customers access Amazon services like ebooks and films. Of course, an iPad lets you do this as well, but for Apple these devices are an important revenue source in themselves.

And that’s the distinction. Kindles and iPads are both tablets, but the Kindle is generally cheaper and lower specification than the iPad, and the Kindle device itself earns much less profit for the firm.

The main value of the Kindle to Amazon is that it makes it much easier for customers to buy the services which are a major part of Amazon’s business. And they can also use a Kindle to buy vast numbers of physical products from Amazon as well.

The Amazon Fresh grocery delivery service also fills a similar delivery service gap between buying online and actually getting groceries into your home.

Everything you buy needs a value chain of interlinked products and services to help you find it, choose it, buy it, get it, use it and eventually get what you need from it. You are only interested in the get what you need bit, but you must have all the other stuff before that in order to get what you need.

I call this “getting to the End Point of customers’ needs”. And it’s a great way to understand where your product/ service fits into your customers’ life journeys. And how products and services help them reach their personal objectives.

Your customers’ life journeys are their career life journeys, their education and training life journeys, their social life journeys – or whatever aspect of their lives your firm helps them live through.

Value chains of interlinked products and services lead to personal End Points

The End Point of a customer’s needs could be a successful career, or in the shorter term it could be an MBA at a top business school to help them with that career. End Points are the customers’ longer term aims that your product or service enables.

End Points are nested, shorter-term End Points are perquisites for longer-term End Points.

On a shorter timescale, another End Point could be a great night out, which is enabled by knowing the best new bars and restaurants. And this in turn is enabled by having some knowledgeable friends and some flexible messaging technologies to help you organise the night out.

Customers reach their desired End Point by going through lots of serial stages in their life journeys. Each stage requires capabilities, which are supplied by a mixture of product-like things and service-like things. Things like information sources, transportation services, bar and restaurant services, and devices or permissions.

Customers’ life journeys are a bit like project Gantt charts, flow charts or business process maps. Outcomes need to happen one after the other, and in the right order. And these outcomes are enabled by interlinked chains of products and services. Each product and service does its bit to get a customer to the End Point of their needs.

Amazon is very clever at checking for missing links in these chains of interlinked products and services. When they spot a missing link or a link that can be improved, they develop new products and services, like Kindle, Amazon Fresh and others.

They even used to sell a Wi-Fi enabled button called Amazon Dash, which automatically reordered your favourite product when you pressed it. But now the Amazon Alexa service, which runs on the Amazon Echo smart speaker product, uses AI voice recognition to be even more convenient.

The benefits of making your product more like a service

If you make a product, then there are lots of benefits to adding some service-like qualities to your product. This is “servitisation” and it lets you radically change your business model.

For example, you could just rent out products rather than letting customers own them. And if you still own the products, why not redesign them for more durability and easier refurbishment?

You can also add IoT connectivity and turn your products into ‘super loyalty cards’, which record how they are used.

Just imagine recording how thousands of your products are used. You could learn how to redesign them to make massive improvements in usability. Companies which provide SaaS software do this all the time.

And if you have IoT products you could even use the real-time Internet connection to every device to learn when individual users will need some help. And even make timely interventions – before they get a problem.

Lastly, this moves you to a subscription business model, like Netflix. Which means longer and deeper customer relationships, more customer data, more customer learnings and more lock-in for you.

The benefits of making your service more like a product

If you provide a service, then there are lots of benefits to adding some product-like qualities to your service.

For example, you might have an inhouse team which provides a great data analytics service, or a stunningly efficient logistics and distribution service. Maybe you could monetise that capability by selling it externally?

But in order to (a) make the idea profitable and (b) make it a clear proposition you need to define and structure it in some way.

Services are inherently flexible. They are produced and consumed at the same time, so they can very closely fit the needs of the user. And that’s great, but there needs to be some limit on what users can ask for, especially for external users. 

In order to make this new service profitable you need to make it a bit like a product by adding some structure to its potentially unlimited form. These limitations will help to standardise the resources you consume when you provide it.

For example, you might only allow certain use cases and customer types. These limitations help you to get scale economies and to automate.

You’ll also need to think about regulatory limitations, like with financial “products”.

And don’t forget to make this new service into a clear proposition for customers to easily understand. You’ll need to make it clear internally as well, so your salespeople can buy into it themselves, and more easily convince external users.

Again, you can do this by putting limitations on the inherent flexibility of the inhouse service capability that you started off with.

People understand neat packages which talk about the things that matter to them. So, make the service a bit like a product by limiting what you say about its functionality to what they value.

Getting the product/ service mix right is tricky, but worthwhile

It’s not easy. Marketers need to shift from transactional marketing to relationship marketing, salespeople need to sell service contracts not products, your firm will need much more internal and external coordination … and you have to convince customers stop wanting to actually own the product.

Long-term relationships with customers also bring new challenges. Like long-term risk and exposure, or new financial models. But long-term relationships also let you really get to know the B2C market, or B2B customer firms, their staff and their culture. Which should improve lock-in and cross-selling.

Getting the product/ service value chain right does not mean changing all your products into services. It just means using more of the product/ service spectrum.

Products and services are part of interlinked value chains of products and services that get each customer to the End Point of where they personally want to be. So, analysing your customers’ journeys tells you where your offer fits in. It also shows you gaps that you can fill with other products and services.

Lastly, the most surprising thing that came out of my Customer Journey research was not about how to help customers get to their personal End Points. It was that you can recommend totally new End Points that they would never have thought of.

Duncan is a lecturer at Nottingham University Business School. He also advises organisations on creating value with digital data and he writes in his own blog.

Connect with me on LinkedIn at www.dhirubhai.net/in/duncan-r-shaw-7717538.