In today’s business landscape, organizations need to carefully consider how they structure their offerings and how they position themselves in the market if they are to remain competitive. As organizations navigate their options, one key choice they must make is whether they should offer their products or services as a service or a commodity. The decision to pursue one structure over the other is not only a financial concern, but it can also have a major impact on an organization’s customer service, operational efficiency, and long-term success. In this blog post, we will discuss the benefits and drawbacks of pursuing an offering as a service or a commodity and outline the key considerations organizations should make when making the determination.
Definition for a Good, Service and a commodity
What is a commodity?
A resource or product that shares the same qualities and value as another item is said to be a commodity. This means commodities are interchangeable. Commodities are frequently basic or generic materials that aid producers in providing a service, as when a producer uses iron to produce various goods. Other examples of commodities include crude oil, gold and wheat.
There are two categories of commodities: hard and soft commodities. Soft commodities are items that consumers cannot keep for an extended period of time. This includes food such as coffee beans or sugar. Hard commodities are items that have been mined or extracted, such as metals or natural gas.
What is a service?
A service is a unique good or method of work whose creator determines its worth through branding or marketing. For example, jewelry and televisions are products. The businesses that market these goods choose each product’s individual market value.
Consumable goods and durable goods are the two different categories of goods and services. Goods that users have to frequently replace are consumable goods. This can include petroleum gas or groceries. A long-lasting or infrequently used product or service is referred to as a durable good. This includes things like furniture or kitchen appliances.
Commodity vs. service
Here are a few distinctions between goods and services:
Differentiation
Because they frequently remain in their natural state after extraction or harvest, there are few differences between the various commodities. This means commodities have no added value. On the other hand, because they are altered by manufacturers from their natural state to fulfill a purpose, services or products are very different from one another. Because different versions of a product can be sold for various prices, differentiation increases the value of services or products.
Price
Because there is no distinction between the same commodities, commodity prices frequently remain constant across the globe regardless of the company that extracts or produces the commodity. The general price of commodities is influenced by outside factors like supply and demand and the stock market. Even the weather can have an impact on the cost of soft commodities like cotton and corn.
Depending on their unique value and the business that sells or manufactures them, services and products have different prices. Similar to how supply and demand affect prices for commodities, marketing also plays a significant role in determining the cost of a service or a good.
Change potential
Despite technological advancements or general economic changes, commodities frequently remain the same. Commodities can never change or advance because they depend on fundamental resources like agriculture and minerals. For instance, the minerals that businesses today still extract from the earth are the same ones that they did hundreds of years ago.
Due to added value and innovation, products and services can change, evolve, or even stop being used by the general public over time. For instance, products like vacuum cleaners were initially bulky, single-model devices. Numerous vacuum companies have developed various models over time with a variety of sizes and specialties. Due to technological advancements, added value, and economic changes, they have changed and become more innovative. As a result, the vacuums that businesses sell today differ greatly from earlier models.
Consumers and purpose
The manufacturers who purchase commodities do so with the intention of creating goods or providing services. These manufacturers create finished goods from raw resources. Average consumers who intend to use the finished good or service are among the consumers who frequently purchase services or goods. Consumers are the final intended users of the products or services, which are the result of the manufacturing process.
Method of purchase
Through the stock market, business contracts, or exchange-traded funds, you can exchange or trade commodities. Additionally, raw or physical commodities can be purchased or sold. People purchase goods and services for personal use from traditional consumer markets. They also purchase these intangibles, such as antivirus software to safeguard devices. Investment portfolios contain goods and services that can be found and traded.
Investment safety and stability
Because they frequently remain stable during times of economic recession, investors typically view investments in businesses that produce necessary goods or services as safe investments. Commodity investments can occasionally be risky because their value can drastically decline during an economic downturn. In hard times, supply and demand greatly affect the value of commodities, causing prices to change quickly.
Demand
Commodities satisfy consumer needs indirectly, meaning they have derived demand. Demand for materials that is derived from the need for related or unrelated materials Demand for materials that can be used to obtain or create other materials is directly related to derived demand. For instance, chocolate manufacturers need the commodity cocoa to produce and sell their finished goods.
Products and services have direct demand because they directly meet consumer needs. Consumers require the end products that commodities can provide. Using the chocolate company as an example, customers directly request the company’s final product, which is chocolate. Due to the fact that they are not in their finished product form, the raw materials used in products cannot satisfy consumer needs.
Federal regulation
Under the Commodity Exchange Act, commodities are regulated by the Commodity Futures Trading Commission. Depending on the intent and characteristics of the products and services, various federal agencies regulate them. For instance, the Food and Drug Administration oversees the regulation of cosmetics, medical devices, food, drugs, and tobacco products. The National Highway Traffic Safety Administration oversees tire safety as well as vehicle safety.
FAQ
Do commodities include services?
A commodity is a basic good used in commerce that can be exchanged for other items of the same kind. The most frequent use of commodities is as raw materials for the creation of other products or services. A given commodity’s quality may vary slightly, but it is essentially the same across producers.
What does commodity service mean?
Frequently, a raw material used to produce finished goods is referred to as a commodity. Contrarily, a product is a finished good that is sold to customers. Both goods and products are produced and manufactured, with the main distinction being their positions in the supply chain.
What is difference between commodity and industry?
a system service offered by a for-profit provider to a sizable and varied group of customers
