Service as a Differentiator: Why What Surrounds the Product Often Counts More

When the service is the same, something else decides

In many industries, several businesses can deliver the same service at similar quality. Three electrical contractors in a town install the same systems to the same standards. Two tax practices prepare the same annual accounts. For the customer, the core service is hardly distinguishable. Yet they stay with one for years and leave the other after the first order.

This piece asks: why does everything around the service often count more in B2B than the service itself, and when does service become a cost trap? To answer it, we first clarify what is meant by service and present the mental model of product levels according to Levitt. Then come the research findings, two views, and finally an assessment of which service pays off for a small business.

Customers buy a service and remember the collaboration.

What is meant by service

Service here means everything that is part of working together but is not the core service itself: reachability, response time, clarity of quotes and invoices, keeping deadlines, information about delays, advice before the purchase, support afterward, and how mistakes are handled. In English this is often called the service around the product.

This must be distinguished from services as a business of their own, such as maintenance contracts or support fees. They are paid for separately and are the subject of the guide building recurring revenue. This essay concerns the service that is usually not charged individually but decides whether customers stay or go.

The mental model: Levitt’s product levels

In a much-cited 1980 essay, Theodore Levitt claimed that there is no such thing as a commodity. All goods and services can be differentiated, and this applies even more to industrial goods and services than to consumer goods. His example is dealers on commodity exchanges: they trade in completely identical goods but sell the quality of their execution, their responsiveness, and the clarity of their confirmations. Levitt sums it up: when the generic product is undifferentiated, the offered product makes the difference in getting customers and the delivered product in keeping them.

To make this distinction tangible, Levitt describes several levels of a product. For a small business, they can be translated as follows.

The model has a point that is often overlooked. What is augmented today will be expected tomorrow. A dedicated contact person may still count as something special today and be taken for granted in a few years. If you do not deliver what is expected, you lose, even if you offer a lot that is augmented.

What research shows

For the question of why business customers leave, the article why customers leave is relevant. It describes the study by Friend and Johnson (2017), in which buyers in 35 cases of lost business relationships mainly cited neglect by the provider: rigidity, too little attention, unresolved problems, and offers made without knowledge of the customer’s goals. None of these reasons concerns the core service. All concern what surrounds it.

A study by Agag (2019) of small and mid-sized enterprises in Egypt selling to business customers via electronic platforms points in the same direction. Buyers assessed their suppliers on several characteristics, including security, honesty, reliability of delivery, handling of mistakes, and communication. Reliability and the absence of deception had the strongest effect on the relationship. The study concerns a different country and electronic commerce. But the finding fits Levitt’s distinction: what binds customers is first the reliable fulfillment of what is expected.

Research on handling mistakes is particularly revealing. The so-called service recovery paradox claims that a customer can be more satisfied after a well-resolved mistake than without any mistake. De Matos, Henrique, and Rossi (2007) presented a meta-analysis on this. Their result is twofold: good recovery did have a positive effect on satisfaction. On repurchase intention, word of mouth, and the company’s image, however, they found no effect.

For a business this means: a well-resolved mistake restores satisfaction, but it is not a way to bind customers more strongly than they would be without the mistake. The best recovery does not replace the reliability that would have avoided the mistake.

Two views: differentiator or cost trap

The first view follows Levitt. When core services converge, service remains as a differentiator, and it is harder to copy than a price. A competitor can match a discount within an hour. A culture in which every technician calls the customer before a delay takes years. A business’s positioning can therefore lie in its service, as the guide sharpening your positioning describes for the difference in the positioning statement.

The second view warns of the service paradox. The guide building recurring revenue describes the observation by Gebauer, Fleisch, and Friedli (2005) from working with more than 30 manufacturers: the companies invested in their service business, offered more, had higher costs, and did not achieve the expected returns. Service that is not paid for and does not demonstrably bind customers is a cost block that grows every year.

I consider both views correct and see the resolution in Levitt’s levels. Most customers do not leave because an extra is missing, but because what is expected does not arrive reliably. What is expected is also usually cheap: a call before a delay costs minutes, an understandable invoice costs a better template. Expensive and risky are the extras offered without checking. Service therefore pays off first as reliability and only then as augmentation.

Which service pays off for a small business

A few rules can be derived from the findings. They are not recipes but test questions with which an owner can look at what surrounds their own service.

• We know what our customers tacitly expect because we have asked them.
• Commitments on deadlines and updates are measured, not just made.
• When delays are foreseeable, we inform the customer before they ask.
• There is a fixed process for mistakes with a person responsible and a deadline.
• For each extra, we know what it costs and whether it demonstrably retains customers.
• Extras that cost a lot and achieve nothing are priced or discontinued.

The first point is the most important and at the same time the most often skipped. What a customer expects cannot be guessed. The customer survey with the importance-performance grid shows where expectation and fulfillment diverge, and the largest gaps are often in communication when things deviate from plan. How to deliver such news openly is described in the guide delivering bad news. The first weeks after an order are particularly formative; more on this in the guide customer onboarding.

Transfer: what follows beyond the individual case

The idea extends beyond service. Trust in business relationships arises less from big promises than from many small promises kept. Delivering reliably what you say and saying openly when something goes wrong creates a relationship that a competitor with a better price will find hard to break. This is the operational form of an attitude that runs through the articles on this platform: transparency beats staging.

The limits are equally clear. Service does not replace a missing core service, and it does not justify an arbitrary price premium. If you want to reflect the value of your service in the price, justify it as described in the analysis price differentiation: as a recognizable difference in service offered equally to all customers. The studies cited also come from other countries and industries. Their common pattern is plausible, but they do not provide an exact transfer to every business.

Conclusion: reliability before augmentation

Why does everything around the service often count more in B2B than the service itself, and when does service become a cost trap? It counts more because core services converge and business customers tell providers apart mainly by the collaboration, and because, as research shows, they leave more often because of neglect than because of the service itself. Service becomes a cost trap when it grows as an unchecked extra without anyone knowing what it costs and whether it retains customers. The conclusion is simple: first deliver what is expected reliably, then choose and price a few extras deliberately.

1. This week: Write down what your customers tacitly expect and mark what of it does not work reliably.
2. Next month: Set a fixed process with a person responsible for delays and mistakes.
3. In a quarter: Calculate what each extra costs and decide whether it stays, gets a price, or is dropped.

A customer rarely forgets who called them before a delay. They forget even more rarely who did not.