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Differences Between Product Based Companies and Service Based Companies

Published on 06 Mar 2020

The most arduous choices are to the questions that tend to bring life-changing decisions, for a fresher it is choosing just the right firm to work for either as a job or as an entrepreneur. No one will ever bear the brunt of your failure, so making the right choice plays a pivotal role in garnering the relevant experience in one’s desired field.

As the placement season draws closer, you must be working hard to get your game plan right before your dream companies come to your campus for recruitment. You might be in a phase where your friends and relatives are asking you if you want to get placed in a core company or a service based company but you are not really sure of it because you don’t have a very good idea.

To make an informed decision, you should have a clear understanding of the kind of work both these companies do, what they look for in candidates while hiring them, what the job security, market scope and pay packages are like in product based companies and service-based companies. In this article, we will clearly tell you the differences between product based companies and service based companies along with the perks and downsides of working in product companies or service based companies.

Firstly, let’s make something very clear, core companies are companies which offer jobs in core areas of engineering like electrical engineering, mechanical engineering etc. Core companies specialize in particular sectors like the infrastructure sector and such companies are valued and known for their level of expertise in their respective areas of specialization.If you are an Electronics and Communication Engineer, TCS or CTS might not be a core company for you unless they are offering you a role related to your specialization which is electronics and communication but TATA communications might be a core company for you.

Now that we got that out of the way, let’s look at the differences between product based companies and service based companies.

To put it in simple words, a service based company is like a restaurant and a product company is like an ice cream parlor. If you are wondering, both of them are places where you go and have delicious food then how are they different. You usually go to a restaurant and order something and then the food is prepared to suit your taste whereas in an ice cream parlor you usually pick your favorite flavor from a list of flavors that they already have. In other words, service based companies build software or products only when a customer approaches them and asks for a software to be authored according to his needs. A product company on the other hand already has a product which they sell to a wide range of customers or clients.

Some examples of service based companies are TCS, Green Trends Saloon, tailor shops, etc. and some examples of product based companies are Google, Sony, Motorola, Dell etc.

To help you understand this better, let’s now look at some real-time examples of product based companies and service based companies. Apple is a product company which manufactures products like iPod, Macbook, and the iPhone.

They manufacture these products in large numbers and stock them, while a company called iCracked which repairs electronic devices like the iPhone is a service based company as it provides a service only when the customer seeks it.

Product based companies create products like Oracle, Adobe Photoshop and they usually sell it to as many clients as possible. More often than not product based companies sell something tangible while Service based companies usually offer services that might not be tangible. For example, a soft skill training institute offers training and helps you pick up new skills. The service offered in this case isn’t tangible. Service based companies like TCS, Wipro etc usually use products (Oracle, Photoshop, Premier Pro) made by product based companies for various purposes.

The products or services offered by a service based company are usually exclusive and customized to suit the specific needs of their clients and they won’t be shared with other clients of theirs. As an employee who has been assigned a specific role the work that you do either of these companies will mostly be the same but the mindset will be very different.

In a service based company, the client is King. They want the customer to be happy and satisfied with the product or service offered while in a product based company, quality is king. They want the product to be top-notch so that more people will start consuming it.

By now, you should have a clear understanding of what a product based company or what a service based company does. But this might not have really helped you pick which company to work for. Let’s look at a few differences that will help you clearly decide between product based companies and service based companies:

1. Hiring Candidates

Product based companies usually hire candidates who have very good domain knowledge and who are familiar with the latest tools and technology. Communication skills may not really matter when it comes to the recruitment process. This only means that you need not have to be good enough to sell the product (unless you are applying for a marketing or a sales role) but you should be fluent enough to convey your ideas effectively.

If you are aspiring to get into a service based company then your communication skills will be as important as your technical knowledge. In some cases, you will be expected to have extremely good marketing skills and interpersonal skills to be hired for a role in a service based company.Even how you dress and how you present will decide if you get the job or not. It’s necessary for a service based company to hire well-groomed candidates who also have good communication skills, as they have to deal with the clients.

2. Job Security and Work Pressure

According to various surveys, job security is usually higher in product based companies than service based companies but an employee in a service based company feels more pressure due to the tight deadlines and targets.Recently, it has been observed that service companies tend to hire in large numbers these days and after the training period, most of the hired candidates are benched for several months.

This is part of the reason why job security is less in service based companies and part-time jobs aren’t usually available in service based firms whereas product based companies usually offer part-time jobs and internships. However, all of this is very subjective and it could differ from company to company.

3. Economic Growth

On analyzing the data from the last few decades, it is evident that there has been a shift from manufacturing to a service economy. The manufacturing economy has been steadily dropping in the past decade while at the same time; there has been a constant rise in the service economy graph.

Differences Between Product Based Companies and Service Based Companies

According to the World Bank’s graph of Service economy and Manufacturing economy, we can see that from 1996 to 2014, there is a constant downfall in the growth percent in the manufacturing economy while there is a constant increase in the growth percent in the service economy.

4. Flow of Business

Product based companies create or design their products or application in advance even before clients approach them. Once the product is made or application is developed it is opened to the market.

Service based companies work only when a client approaches them with specific needs or requirements. Once the client requests for a particular service from them they start building their product or customizing it to suit the clients’ needs.

5. Target Market

Both Product based companies and service based companies usually target different markets. Product companies can market and sell their products to the global market while service based companies usually cater to the local market. For example, an electronics store can ship its products to any place in the world but a beautician wouldn’t travel far from home. There could be a few exceptions to this.

6. Marketing

Marketing strategies and tactics for product based companies and service based companies will be very different. A product based company will usually invest a lot of money and time in branding to increase the customer awareness of their products and marketing in the case of product companies will be global. On the other hand, service based companies will directly try to target a specific set of people or the local audience and they usually tend to have individualized marketing messages and they focus more on customer experience and customer satisfaction.

When it comes to business plans, product based companies will try to increase their market share while service based companies will focus primarily on increasing revenue rather than increasing their market share.

7. Turnaround Time

Product based companies have very quick turnaround time as their customers usually make spontaneous and quick purchase decision which may not be the case with service based companies. Service based companies would offer to require multiple iterations and negotiations before a contract or deal comes through.

Last but not the least, you will gain a significant level of expertise in your area of specialization while working in a product based company as you might work years on end on a single product which makes you a valuable asset for the company. This might not necessarily be the case in service based companies.

We hope this article gives you the answer to all the questions that have been popping in your head about service based companies and product based companies.

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