Goods and Services: Definitions and Key Differences

Updated March 10, 2023

Economic activity depends on the production and consumption of goods and services, which are the two key types of economic output. While some organizations provide goods and services, others focus on one type of output to meet consumer demand. Learning about these two types of economic output can help you develop a deeper understanding of how economies work.

In this article, we define goods and services and provide a list of differences between the two.

What are goods?

Goods are items, articles, products or commodities that customers purchase from companies. They are tangible items with physical attributes you can touch, feel and see, like color, size, shape and weight. Consumers might use a good a single time or multiple times. They might also share the good or give it to someone else without changing its essential nature.

When a consumer purchases goods and pays the assigned price, they secure ownership of the product; and then possession of the good moves from the seller to the buyer. Delivering goods from the seller to the buyer may involve manufacturing, warehouse storage, marketing and logistics. Because of this process, there is general uniformity between goods, except in businesses that produce small-batch or custom products.

Some examples of goods include:

Computers
Books
Notepads
Laptop bags
Water bottles
Cars
Jackets
Cell phones
Desks
Lamps

What are services?

Services are intangible activities, amenities, benefits or assistance that one person or business performs or provides to another. The receiver of the service or their representative pays for the service. In some industries, service output can come from an individual, like someone who cuts your hair. In others, a group performs a service, such as a team of doctors working together to perform surgery on a patient. While the consumer of the service can utilize it, they don't own the service they receive. Instead, the service provider owns the service.

In some instances, a consumer purchases an item to receive a service. For example, an individual who purchases a movie ticket can enter the theater and enjoy the selected movie. In this case, the movie is a service and the ticket purchase is how the consumer can take advantage of the movie viewing. Purchasing a movie ticket allows you to see the movie, but you don't own part of the movie theater because the theater provides a service.

Some examples of services include:

Computer repairs
Meal deliveries
Air conditioning installations
Tutoring
Waste collection
Transportation
Events management
Internet access
Massages
Dry cleaning

Differences between services and goods

Here are some differences between services and goods:

Tangibility

Goods are tangible objects you can touch and then take home after purchase, whereas the time and effort that goes into providing services are not. While a service may result in a tangible object, like a meal, it isn't tangible. Consider the work of a meal delivery service. The meals you receive are tangible goods, but you paid for the meal delivery service. The service is intangible, and the goods you get as part of the service are the company's products.

Transferability

When you buy a good, you can usually give it to someone else within certain legal and financial limitations. For example, if you purchase a shirt and no longer want to wear it, you can give it to a friend or family member who owns the good. Goods have a higher transferability than services, and some companies specialize in reselling goods. While you can sometimes give a friend a certificate to receive a certain service, the service provider still owns the service since they have the skills and knowledge to perform the task.

Presence of inventory

Companies that provide goods to consumers usually have an inventory of products available to fulfill consumer orders, unless the company creates custom goods with every order. These companies usually have an inventory of supplies and materials to make the goods. Service-based businesses do not use an inventory, since the service provider completes certain tasks for every customer. Some companies have an inventory of goods that support the primary service model. For example, an auto repair shop might offer repairs and other services and also have a small inventory of car appliances for purchase, like air fresheners and cleaners.

Ownership

When you buy a good, you take ownership of the item from the seller. For example, if you buy a computer from a retail store, you now own the computer outright. When you purchase a service, you don't retain ownership of the service. Instead, the service provider continues to own that service after they've completed the work. For example, if you pay for a haircut, you receive a service from the hairstylist. Your purchase doesn't allow you to take the stylist's scissors or combs with you, and you don't own part of the hair studio.

Returnability

Because goods are tangible items, you can often return or exchange them, depending on the purchase agreement. While you can sometimes get a refund after buying a service but before receiving it, you can't return a service you've already received. If you're unhappy with the service you've received, you can sometimes get a partial or full refund, but the service still occurs.

For example, a parent might enroll their student in music lessons. Before the first session, they might decide to cancel and receive a full refund. Once the student begins their sessions, the parents might not get a rebate for ending the lessons unless they can prove an issue with the instruction.

Time management

Typically, services have stricter time requirements than goods because when you buy a good, the company might ship it to you or requisition it from somewhere else. Often, when you buy a service, the service person provides the service at a specified time. This structure allows both the service provider and recipient to be present when the service happens. For example, if you order a custom part for your car, it might take several weeks to arrive. Once it arrives, you might schedule a specific time to have the piece installed by an auto technician.

Quality measurement

Measuring the quality of a good is usually easier and less complicated than doing the same with a service you've purchased or signed up for. Consider the case of electronics stores that sell a specific flash drive that businesses may need to maximize their storage capacity. Except for faulty devices, you can usually assume that all the goods in the flash drive's production line work the same way.

Service-based businesses can be more challenging to evaluate because it's often subjective. For instance, a barber's work may differ from one client to the next, each haircut may be different, and the client's expectations can also vary from one person to the other. While businesses may use surveys and other methods to measure customer satisfaction, an objective measurement for the quality of a service isn't as easy to determine as the physical quality or appearance of a product purchased by a consumer.

Customer interaction

In many cases, vendors who sell services interact with their customers more than vendors who sell goods because a service administration often requires a service provider who speaks with the customer before providing the service. For example, a tutor interacts closely with their students and parents. Companies that sell goods might have low-contact or automated sales processes that increase efficiency and reduce the number of necessary sales employees. For example, a grocery store might staff a few check-out lines with employees and rely on self-service kiosks for most transactions.

Variability

Often, services include more variability from customer to customer than goods do. In many cases, except for smaller businesses and small batch operations, a company's goods are identical. Consider a business that mass produces notepads. This business likely has a certain operation in place, including quality control, to ensure that it manufactures the same product line of notepads every time to meet customer expectations and the specifications they have for their products. This leads to a product's uniformity.

While a service provider may aim for and train employees to provide the same service each time, many variables are involved in carrying out a service. For example, a restaurant that employs 10 people as part of its waitstaff can expect that each person differs from the other in how they cater to guests, take orders, deliver food and answer menu questions. This variability can also be a strength. For example, a hair salon might employ eight stylists, each with their own area of specialty, who might attract customers of different ages and hair types.