Service Sector in Our

Economy

What are services? Nature and

characteristics of services;

Evolution over services

What are services?

• Services are economic activities that

produce time, place, form, or

psychological utilities

Time: Maid in a household

Place: Warehousing

Form: Use of database to produce desired

‘form’( format, configuration)

Psychological: Entertainment

What are services?

Services are deeds, processes, or performances,

• Deeds: Tangible output- repairs, maintenance services, consulting services, training, e-commerce applications, web design, surgery,

• Processes: problem analysis activities, meetings with client, follow up calls, reporting,

• Performances:

No tangible output- Encounters with customers, consultations, medical examination, diagnosis ,interviews, teaching,

Intangible accompanied with with physical output-restaurants, petrol stations, interior decorations

What are Services?

• Services include all economic activities whose

output is not a physical product or construction,

is generally consumed at the time it is produced,

and provides added value in forms (such as

convenience, amusement, timeliness, comfort,

or health) that are essentially intangible

concerns of its first purchaser-----Zeithaml

• Customer service is the service provided in

support of a company’s core products. These

are free, whereas for services one has to pay.

Services as package of features

(Fitzsimmons and Fitzsimmons)

• Supporting facility; as physical resources; must be in place before service is offered-hospital infrastructure, labs.,

• Facilitating goods: product-service combinations- medical supplies

• Explicit services- benefits which are observable to the senses- cure of a patient, food in a restaurant

• Implicit services- psychological benefits, can be sensed vaguely, such as empathy,

What are Services?

With relation to goods, services can be an

end of a pole on a continuum

• Facilitating services: service which is

vital to operate goods, such as delivery of

petrol at petrol station

• Facilitating goods: goods which are vital

to use services, such as food in a hotel

Tangibility-Intangibility Continuum

• Petrol

• Automobiles

• Photocopier

• Car retailers

• Restaurants

• Health care

• Haircut

• Stress Counselling , taxation services

• 100% goods mfg.

• 80% goods

• 70%goods,

• 70% service

• 80%Service

• 90% service

• 100% service

• 100% service

Services and Human Society

Pre-industrial society:

• Major economic activity: Agriculture, forestry, fishing, mining

• Technology: low; muscle power

• Occupation ; seasonal unskilled jobs

• Social base: Societal living

• Services: Money lending, personal and household employment , trading, bartering, military

Services and Human Society

Industrial society:

• Major economic activity: Processing,

manufacturing,

• Technology: power, machines, automation

• Occupation: Semi-skilled, technician

• Social base; Individual

• Services: Warehousing, transportation,

marketing, restaurants, banking, warfare

Services and Human Society

Postindustrial society:

• Major economic activity: Information and

knowledge, healthcare, recreation

• Technology: High professional skills, Research

and Development, Education

• Occupation: Services, Scientists, professionals

• Social base: Individualism

• Services: Trade, Finance, Real estate, Health,

Research, Insurance, Recreation

Classification of Services

• Customer perspective

• Customization and judgment

• Capital vs labour intensity

• Contact of Processor with customer

Customer perspective

• For Consumer (facilitating services):

Transportation, Communication, Finance,

Accommodation, Recreation

• To Consumer (human services)

People processing( diagnostic clinic, Mobile

X-ray)

People changing (university, hospital,

church, prison)

Customization and Judgment

• High judgment (skills by contact person):

1. High customization: family doctor, hair dressing, tuition classes, piano lessons, driving lessons

2. Low customization: Lecture in a class room, guided tour

• Low judgment (skills by contact person):

1. High customization: Telephone service, restaurant, hotel service, banking

2. Low customization: Bus service, theatre

Capital vs. Labour intensity

• Labour Intensive:

1. Professional: Doctors, solicitors, accountants

2. Skilled: mechanic, decorators, barbers

3. Unskilled: Postman, security guard, porter

• Equipment Intensive:

1. Skilled: Airlines, computer services,

2. Unskilled: Operators in Cinemas, petrol stations, attendants,

3. Self-service: ATM’s, vending machines

Contact of Processor with

Customer

• High Contact: Pure service( Counselling, medical care, tuitions, hair-cutting)

• High-medium Contact: Mixed service( bank, insurance broker, legal advisor)

• Low –medium Contact: Quasi-mfg.( Processing of insurance claims, distance learning, production of films)

• Low Contact: Extractive/mfg.: car mfg. oil refining

High contact is more difficult to design and control and Low contact easier to design and control

Classification based on Service

providers• Producer Services (Intermediate markets)

1. Financial services: banking, insurance

2. Shipping and distribution: ocean, rail,air

3. Professional and technical: design, legal

4. Other services: computer, postal, travel

• Consumer services (final market to citizen)

1.Retailing

2. Health care

3. Recreation

4. Education

5. Social services

6 Personal services-restaurants, repairs, laundry

Sectorial Clssification-

Murdick

• Retail and Wholesale services

• Non-profit services

• Producer services: Finance, Insurance, Real

estate, Business services, Legal services,

Membership organizations, Misc. professional

services

• Consumer services: Health care, Education,

Personal services, Car repairs, Hotel/motel/food

services, Leisure services, Private households

Classification on Types of Services

Primary: agriculture, animal husbandry, mining,

Secondary; Goods production, processing,

Manufacturing

Tertiary: Transport, Recreation

Quaternary: Trade, finance, insurance, real estate

Quinary: Health, education, research, Government

Classification of Services as per

Macro-economy

1. Wholesale, Retail Trade, Restaurants,

and Hotels

2. Transport, Storage, and Communication

3. Finance, Insurance, Real Estate, and

Business Services

4. Community, Social, and Personal

Services

Reasons for growth of Services

• High productivity in agriculture and manufacturing releases labour

• Regularity of jobs in industry and services

• High returns in trade, professions

• Increase in urbanization

• Preference for knowledge work against muscle power

• Growth in individualism

Society progresses from agriculture to industrial to service economy

Differentiating Characteristics:

Services: Intangibility

Advices, software instructions

• Cannot be seen

• Cannot be felt

• Cannot be tasted

• Cannot be touched

Implications of Intangibility

• Services cannot be owned

• Services cannot be inventoried or stocked

• Services cannot be displayed

• Services cannot be communicated

• Services cannot be packed

• Services cannot be transported

• Services cannot be patented

• Pricing is difficult

Heterogeneity or Variability

No two services are alike : Tailoring, saloons

• service as performance may differ from

person to person, hour to hour and day to

day;

• human transactions between customers

and employees vary; human emotions

vary at time of transactions

• Services for humans

Implications of Heterogeneity

• No standardization or consistency

• No surety of what is delivered matches planning

• Quality cannot be controlled entirely by the supplier

• Customer satisfaction depends on both employee and customer actions

• Service delivery depends on both employee and customer actions

Simultaneity or Inseparability

Simultaneous production and consumption-

food in a restaurant, diagnosis by a doctor

• Customer can be present while service is

being produced

• Customer has to be present when service

is delivered

• Customer interaction is essential

Implications of Simultaneity

• Mass production is difficult

• Customer presence affects the transaction

• Service providers find themselves playing the role of product itself

• Decentralization becomes essential, as economies of scale do not exist

• Locate the facility near to the customer

• Customers affect the nature of service experience of other customers

Perishability

Seats on a flight, cinema, class lecture last

for a specified time

• Services cannot be saved

• Services cannot be stored

• Services cannot be resold

• Services cannot be returned

Implications of Perishability

• Difficult to synchronize supply and demand

• Cannot take advantage of sudden high demands

• Inability to carry inventory

• Demand forecasting is more important

• Recovery strategies when things go wrong

• Capacities are normally over booked to ensure high utilization.

Easy to Imitate

• Banks, Business schools, Restaurants, Hotels,

Travel agencies, Airlines immediately copy

services offered by others.

• It is therefore difficult to gain competitive

advantage over others

• It is also not possible to obtain patents

• Advantages of being first to introduce ,therefore

do not exist as in tangible products

Pricing

• Tangible products are promoted through trade discounts, payment discounts, bulk-purchase discounts. But services have limitations

• There are no set formulas to arrive at service costs.

• There can be wide variations between the fees charged by two solicitors or advocates

Service Organization as a

System

• Organization: Defined by mission, strategies and policies; to meet customer needs in the environment

• Operations system: Designs the service package and delivery system in cooperation with marketing, finance, HR and runs the system to produce services

• Marketing System: manages contacts with customers, sales promotion, distribution and market research, service delivery system

Service Organization as a

System• Human Resources System: Selection,

hiring, training of service providers

• Feedback system: From the customers

and employees

Service as a Resource, Function,

Product

• Resource: Information, technology,

knowledge, wisdom-Intellect service

• Function: Design, maintenance, and

training

• Product: Software