Business services refer to activities that benefit companies without resulting in a physical product. They are a large industry, including many types of consulting, marketing, human resources, logistics (including warehouse management), waste handling, shipping, and administration services. Most businesses in operation need at least some of these services, and they can be grouped into three categories: business-to-business, social, and service to consumers.
Most of the traditional techniques that make for a successful product business are applicable to the success of a service business, although they must be adapted to the specifics of the type of service being rendered. For example, it is not enough to develop a great brand name, and it is not even necessarily true that customers will pay more for the same kind of service. What matters is the value of the service to the customer, and the ability to differentiate it in the market.
The challenge of defining a business model for a service business is that it tends to be more difficult to describe than a product-oriented company. As a result, a predominately product-oriented image of business permeates the thinking and language used to discuss and define business in general, which in turn limits the creative potential for approaches to strategic management for service businesses.
To overcome this obstacle, top managers need to change their perspective on the nature of business by focusing on the characteristics that distinguish one service from another. This approach requires a shift from the product-oriented paradigm in which most people think about business and introduces new elements into the discussion of business models.
Among these are the distinctions between pure and mixed service businesses and the recognition that the transfer of a physical good can sometimes be incidental to the delivery of a service, for example when a restaurant provides ambience or the setting for a meal along with the food itself. Examples of pure service businesses include airlines, banks, computer service bureaus, law firms, motion picture theaters, and management consulting firms.
In addition, the value of a service is often not readily apparent to customers, which can limit their willingness to pay for it. In contrast, a physical product usually has clear features that are easy for customers to compare in the marketplace. In addition, service providers can also influence customers by their behavior: a customer who dithers at the fast-food counter will slow down the service for everyone behind him. This makes service businesses harder to price than products. The prevailing approach to pricing service is therefore one that seeks to improve value for customers rather than simply raise prices as a way of increasing revenue.