What is Product and Service innovation?

Product innovation is the introduction of either a new product or an existing product with significant improvements related to its characteristics. Improvements could be in various specifications and areas such as technical, technological, physical use, software updates, overall size and texture, and so on. For instance, consider the Apple Watch; they release different series every year with significant updates and improvements such as using cellular technology, monitoring your heart rate, acting as your fitness partner, measuring blood oxygen level, and so on. We see the addition of features in every series, and these improvements make them a different product altogether.

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On the other hand, service innovation enhances the performance, utility, features, and value of the offering. Interestingly, service innovation, as such, has its stake in product innovation as well as in the services that are provided. For instance, for a product to be successfully delivered to a customer, one must ensure that the service is good enough for the customers to have a direct impact on the product. Bad service may negatively impact the customer's perception of the product, and good service may have a positive impact likewise. Typical examples of service innovations include customer support, warranties, guarantees, and product use advancements.

There are various categories of product and service innovations that a company can utilize to its maximum and offer better to its customers.

Product innovation

Product innovation refers to the innovation that has been achieved in a product. The addition of features, the creation of new products, and more user-friendly products are a part of the category. Usually, most of the innovation that occurs today is from this category, and not to forget that millions of startups have established themselves by using product innovation.

Technological innovation

Technological innovation is achieved when companies have figured out better ways of manufacturing products or have found a technological solution to an existing problem. Innovation through technology has always benefited companies by saving valuable time and resources, utilizing the employees most efficiently, and has helped companies move toward their vision.

Disruptive innovation

Disruptive innovation is very different from the categories, as this innovation disrupts the market in ways one cannot imagine. Common examples of this would be how Facebook and Whatsapp disrupted the traditional way of texting, and we call them Social Networks today. Usually, it is quite hard to find something like this. Blockchain technology and metaverse are also something that one can call disruptive innovations.

Service innovation

As explained earlier, service innovation occurs when the offering is improved by adding features or by an extension of the service provided. Common examples would be customer support, daily household, and other innovative services to solve problems.

Service innovation categories are no different from what is being devised in product innovation. Disruptions in services, processes, and technological innovations are all categories of service innovation and have had a major role. A major disruption in service innovation today is the digital world. Digital marketing, content marketing, and Search Engine Optimization are making a breakthrough in the industry, and first movers are taking advantage of it.

Benefits of Product and Service innovation

Various benefits of product and service innovation could help businesses function in an evolved way and aid exponential growth.

Higher revenue and profit margins

Developments in a product could directly impact its revenue and its margins. For example, consider the Apple watch; newer versions could be priced higher than the older version while adding a list of features and considering the innovation aspect.
Enhancing the value of what is being offered will have a direct impact on the revenue of the services that are provided. For instance, let us consider services offered by Urban Clap; why do they charge higher than the normal service providers? Or why are they preferred compared to other service providers? It is majorly because of the service they provide and the trust they have built among their customers that help keep their customers loyal.

An edge above the competitors

Product innovation is one of the best ways to ensure that a company's products are far superior to its competitors. Of course, there are instances where competitors duplicate and copy features, but it is unlikely to get the same version that the primary company has developed. Therefore, the more innovation, the better the chances of utilizing the competitive advantage.

Advancements in research and development

The developments in the products and services showcase the company's research and development prowess and establish itself as an advanced center. Moreover, it also assists companies in providing better results and moving forward with advancements in research and development.

This is a crucial factor that only evolves and defines a company's position in the market. Therefore, this advancement will ensure that companies always stay ahead and bring the best user experience by using their research and development department at its utmost efficiency.


Product and service innovation, developments in research and development, advancements in technology, and better customer support lead to many directions. Still, one that is often the path chosen by most companies is expansion. One of the usual ways a company expands is by ensuring that its operations are smooth, its customer support team is efficient, and it has the production capability and research and development at the forefront.

Customer and employee retention

The more confidence a customer has in a company's product, the more likely they will be loyal. For example, several companies like Apple, Nike, and Amazon have loyal customers who never try other products and always wait for the next version of the company's products. This is because the customers believe in the products that the company develops and have full faith in them to deliver the best.

The same is the case with employees. In a world where companies have higher attrition level rates, it is important to retain talented employees to ensure that the companies achieve their mission and grow immensely. Often, an employee would want to work in a company that values its work and presence and appreciates it. But there have been several instances where employees have left since they don't believe in what the company is offering to its customers, and they would want to work at a place where they are sure their goals match the company's vision.

Context and Applications

Product and service innovations have large-scale implications in the business domain and have also played a major role in influencing other industries. Be it the education or health sectors, innovation in products has been seen in various sectors. Therefore, institutions and other sectors need to ensure that innovation becomes their top priority.

For instance, new-age companies like Byju's, Vedantu, and Unacademy are revolutionizing the way kids study. In addition, pedagogy, software development, packaging, product, and mostly all other related aspects to selling have gained a lot from Product and Service innovation.

This concept is important in various professional courses at graduate and post-graduate levels like:

  • Bachelors in Business Administration (Marketing)
  • Masters in Business Administration (Marketing)
  • Bachelors in Industrial Designing
  • Masters in Industrial Designing

Practice Problems

1. Which is a type of product innovation?

  1. Methodological Innovation
  2. Conceptual Innovation
  3. Process Innovation
  4. Infused Innovation

Answer: Option c

Explanation: Process Innovation is a type of product innovation. It can be defined as methods and processes used to increase the overall productivity while solving an existing problem and enjoying its benefits.

2. Which of these is the benefit of product innovation?

  1. Competitive Advantage
  2. Price Advantage
  3. Process Advantage
  4. Product Advantage

Answer: Option a

Explanation: With product innovation, companies can have a competitive advantage and use this to achieve higher revenue and, therefore, higher profit margins. For instance, Apple products are charged heavily compared to its competitors, given that their product is of superior quality.

3. Which of the following choices exemplifies service innovation?

  1. Disruption in services
  2. Conceptual innovation
  3. Customer support option
  4. Higher revenue

Answer: Option a

Explanation: Disruption in services is a niche and qualitative factor that exemplifies service innovation to its core. This is one of the most competitive categories of service innovation and is hard to replicate.

4. Which of these is an example of disruptive innovation?

  1. Cloud computing
  2. New ice cream brand
  3. Chocolate factory
  4. Internet

Answer: Option a

Explanation: Cloud computing is a new way of storing data without using much space. Therefore, this is a classic example of disruptive innovation.

5. Which of these is common between product and service innovation?

  1. Revenue
  2. Profit margins
  3. Both can work hand in hand
  4. One cannot survive without the other

Answer: Option c

Explanation: Both product and service innovation can work hand in hand and benefit each other invariably. For instance, a good quality service provided for a product will increase the odds of retaining customers.

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