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Product vs. Service

In this excerpt from his book "Creating Customer Connections: How To Make Customer Service A Profit Center For Your Company, Jack Burke points out that, while many agents pride themselves on great service, they don't "market" that fact. That leaves customers, and especially prospects, only with price to make purchasing decisions.

This article is excerpted and digested from Jack Burke’s Creating Customer Connections: How To Make Customer Service A Profit Center For Your Company. Originally published by Merritt Publishing in 1997, this popular book remains in print at Silver Lake Publishing. Ordering information can be found by clicking the book title above.

“When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.” ― Richard Cardinal Cushing

Product or service? That is the conundrum, the rub, the question! To better grasp the importance of the overall picture, let’s take a look at some industries that have been, or are, faced with a similar dilemma.

Independently owned and operated hardware stores, like the True Value franchises, continue to dwindle into obscurity. Large discount and wholesale operators, selling on price point only, have battered them to death.

Now if you were to seek out a local, independent hardware store, the do-it-yourself handypersons frequenting the store would be quick to explain that the reason behind their visit was service. The genial, “knows-almost-everything” owner or clerk first explains how to handle the repair (the service) and then supplies the required parts (the product). Clientele acknowledge that the price of the product is higher than at the local discount outlet, but the service is what they’re really buying. That service may not be readily available elsewhere.

Loyalty to that type of service would lead one to believe that there is a future for the independent hardware stores, that they can compete with the big discount houses. However, I maintain that such a conclusion is erroneous because the independent hardware industry has failed to “market” service. They still believe that they are selling product. Just look at the ads in the paper or listen to your local radio station: “3 Day Sale! Screwdrivers, 99¢! Paint, $9.99 per gallon!”

They insist on selling product, not service. And service is really their product! And, to their future dismay, some of the major home center chains are already beginning to market themselves as volume warehouses with small-store service.

To analogize, it’s like Domino’s Pizza marketing quality of pizza, instead of delivery speed. Speedy delivery built their business in spite of “quality--or lack of it”! They knew that and they successfully marketed speedy delivery, glossing over the quality of the product. The hardware industry hasn’t made that quantum leap in thought and is therefore doomed.

The hardware story is one of failure to adapt to a changing market. Here’s another example, but this is based on the inability to manage duality in marketing.

When’s the last time you visited a “service station”? No, not the gas station where you inserted your credit card into the pump this morning and filled up the tank. I’m talking about the service station where an attendant can fill your tank or change your oil, do your brakes, align the front end, and mount your snow tires in the fall. Not too many of those dinosaurs left, are there? What happened? They were convenient. We knew the owner. And the prices were better than the local dealership! Marketing, however, began concentrating on the product―not the service.

Think back a quarter century. Remember the friendly televised faces of Texaco attendants. The advertisements concentrated first on the people and the service, brought together by the product. Now come forward about 10 years and you’ll remember that advertising began to center on the quality of the petrol, cleaning abilities for smoother running engines and octane ratings that would give you that extra boost when needed. The people and the service were missing.

In all fairness, Madison Avenue had assumed that if people came to buy the gas, they would be exposed to the availability of other services--sort of like the osmosis method of education that extols sleeping with a book under your pillow. It didn’t work! Then things got even more complicated as aggressive entrepreneurs capitalized on the missing link of service and began opening “fast service” centers that niched into specific areas such as oil change and tuneup services. As a result, full service stations are a rarity due to an inability to manage duality in marketing both product and service, complicated by niche marketers. Today, most gas stations are limited to the vagaries of product and price exclusively.

The Constancy Of Change

If you’re wondering what this has to do with you, you’re in bigger trouble than I thought. Service industries want to commoditize their services as products. Purveyors of products sell their services. Confusion abounds. When confusion crosses over into the marketing, annihilation awaits.

If that sounds like a doomsday warning, it is! Times are changing and the top business consultants are espousing A, C & L as the critical choices facing business. “A” stands for accepting the realities of the marketplace which results in either “C” (changing) or “L” (leaving). So if we accept that the realities of our market are different today, then lets see what has to change―since I hope none of us want to leave.

Reality Check

The first step is to analyze exactly what your company has to offer your clients. Are you selling a product, or a service?

The insurance industry, as an example, is becoming very much product /price driven. Policies are sold by Internet, by phone and by mail. Some customers never have an agent beyond an anonymous voice on a phone. Even gasoline companies are now testing the concept of selling auto insurance coverage on a direct mail basis to their credit card base.

Product with Price and Convenience

Insurance such as that bought to cover your home, car or life can easily be packaged into a commodity and sold on such a direct marketed basis. Price is the motivator and consumers can save money.

But, and this is a big but, how long will this work? Does the consumer still expect to receive the same level of service as when a neighborhood agent handled his business? When it comes to filing a claim, probably!

Can direct marketers provide that level of service and still maintain the cost savings that generate the business? Probably not! If they do bring the service to higher levels, their costs will rise and eventually the premiums. To most consumers, the insurance product is identical and that leaves price, convenience and loyalty as the deciding factors. In today’s market I would be very light on the weight given to loyalty versus price. I was very loyal to a prior agent, but when that agent’s pricing on auto insurance carried a several hundred dollar price tag―the loyalty ended.

There are some twists however! For instance, here in California, Twentieth Century Insurance captured a significant share of the good driver market without using agents. If you call for a quotation, you’re mailed an application and a quotation is issued back to you by mail. Even existing insureds cannot call and receive quotations on how additions, deletions or changes will affect their premium. The telephone operators are not licensed and can only take the information. This company proved that price can overcome convenience. Claims processing is efficient, so the service element is there but not marketed. By the way, I speak from experience as I became one of their insured shortly after moving to California and experiencing the sticker-shock of car insurance that ran into the thousands.

Mercury Insurance and the agents representing that company effectively compete with Twentieth Century by specializing in that same good driver market at competitive rates. But rather than purely head-on marketing, Mercury stresses that you can still get low rates WITH AN AGENT. Plus, Mercury found and attacked their weak spot--families with teenage drivers. The point is that Mercury competes in a commodity market (price/product), enhancing their marketing with the service aspect of having a “real life agent”. Strictly selling the service or strictly selling the price would not have been as effective of a marketing program.

In another area of insurance, the insurance that we as business owners buy to protect our investments and livelihood―price is important, but service is critical. We need expert advisors to guide our decisions and help manage our risks and exposures. We can’t get that with a postcard that says “Insure your business for $99 a month!” In fact, if we bought on price and price alone, the world’s largest insurance companies would quickly go out of business since they seldom offer the least expensive coverage. I maintain that insurance agencies and numerous other industries serving our needs need to concentrate on marketing their services in order to sell their product.

A business acquaintance, Steve Goodman of the very successful Irvine, California-based insurance agency knows the difference between marketing and selling. Marketing creates the image that leads to a sale. The sale may rest on price, but the marketing needs to emphasize service. His marketing stresses the expertise and the value-added benefits in two highly competitive fields―contractors and hospitals. Brochures, direct mail, advertising highlight the specialists within the agency, their knowledge and years of experience in understanding these niche markets and associated risks.

Value-added benefits to membership on the Goodman Team include free consulting on human resources, regulatory compliance, discrimination problems, EEOC, Workers Comp, OSHA, Wage & Hour, discharge and discipline problems. In addition, clients can take advantage of such other added services as personal credit reports, D&B reports, motor vehicle reports and an injury and illness prevention program. Add to that their industry-specific newsletters, compilations of insurance bid specifications, certificate requests by FAX and periodic seminars on a variety of labor and employment issues. Any wonder why Goodman is a success within his industry?

Every business is facing a different reality. Once you’ve accepted your reality, you can move on to Research, Evaluate and Determine (remember the RED stop sign) the necessary adaptations and changes that can position you to continue growing your business. Make the determination as to whether you are selling a product, a service, or both and market accordingly. Awareness sprinkled with creativity and baked with perseverance is a sure fire recipe for long term success.

Jack Burke is the president of Sound Marketing, Inc., host/producer of Audio Insurance Outlook, editor of ProgramBusiness.com newsletter, and author of both Relationship Aspect Marketing and Creating Customer Connections. For more information, please visit http://www.soundmarketing.com, call 1-800-451-8273, or e-mail jack@soundmarketing.com.