Both products and services satisfy some customer needs. The main distinction between the two is the point at which value is added i.e. when it becomes more than the sum of the raw materials. For a product the value is added when building it i.e. the product already stores the value. For a service however the value is added by carrying out some process on demand from the customer. That is, the value is generated by the actions that are carried out in delivering the service. In real life the distinction gets blurred and organisations usually provide a mix of both products and services. For a product value gets added by taking raw material and then processing them to produce the finished product. For example for a pencil, the raw materials (wood, graphite, glue, paint etc.) are processed and the output is a pencil. The pencil already stores the intended value and can be used by the customer straight away after purchasing it. For a service though, the process is carried out on demand. When when a customer arrives at a restaurant a set of processes are enacted that generate the value required – the customer is seated, her order taken, the food prepared and served and finally the bill is presented. Note that the service may involve providing the customer with a product e.g. a can of soda to go with the meal.
The product or service (or offering) provided can be both physical and non-physical i.e. may not have any physical manifestation. Example of physical products are all around us and we can touch and feel them. Cars, pencils, houses, chairs etc. Similarly a physical service would be something that carries out actions on physical objects e.g. a house cleaning service or a restaurant dinner service. In the modern economy however a vast number of products and services are non-physical. And a subset of that are information based products and services. These are offerings that are entirely information based. An example of a such product may be a book or some music. They are pure information. Similarly examples of information based services are education services and legal services. For physical offerings the raw material are physical. So it is steel, cement, wood for a product such as a house. Similarly for a dinner service it would be rice, potatoes, wine, cutlery and dinnerware, tables and chairs etc. In contrast for information-based offerings the raw material is exclusively information (or data). So a lawyer may take some existing information (case precedences) and turn it into a legal case, adding value in the process. Similarly a bank could take two bank accounts, do a set of validations and then move money between them. There is nothing physical that is consumed or produced.