Defining Services and Understanding the Service Economy with Examples

Defining Services

“A service is an intangible offer that one party makes to another in exchange for money or any other valuable thing. But the party who provide service does not get the ownership of anything.”

Services marketers and managers must appreciate that customers are often buying an experience that needs to be staged, managed, and performed with care.

Understanding the Service Economy

Collectively, the output of different service industries (plus that of government and non-profit organisations) accounts for 70-80% of GDP in many industrial nations.

In the next decade, 90-95% of all new jobs created in developed countries are expected to be in the service sector. Services also play a key role in the economies of developing nations such as Thailand, Malaysia, China, and Indonesia. Where services account for some 50% of GDP.

The nature of service businesses – and how they are managed – is being transformed by a variety of factors.  Briefly, a summary of these factors includes:

Changing patterns of government regulations
  1. Relaxation of professional association standards restricting overt marketing communications efforts
  2. Privatisation of public corporations and non-profit organisations
  3. Technological innovations, including computerisation and advances in telecommunications
  4. The growth of service chains (both companies owned and franchised)
  5. Creation of service profit centers within manufacturing firms
  6. Financial pressures on public and non-profit organisations to find new income sources
  7. Globalisation of service businesses
  8. The service quality movement
  9. Higher customer expectations
  10. Increased leisure time
  11. The hiring and promotion of innovative managers

Numerous opportunities have been presented as a consequence of these changes in government regulations, technology, franchising, and in international markets.  They include, for example:

Opportunities from Govt Laws and Regulations
  • Easier entry to specific product markets
  • More freedom to compete on price
  • Removal of geographic restrictions
  • Incentives to differentiate services in meaningful ways
  • Ability to use mass media to promote professional services
Opportunities in Franchising
  • Standardised service features
  • Use of brand names, symbols, uniforms to provide systematic recognition
  • Mass media advertising
  • Creation of centralised data banks
  • Economies of scale allow centralised marketing research function
Opportunities in Servicing Physical Goods
  • Transport and storage services
  • Installation services
  • Refuelling services
  • Maintenance, repair and upgrading
  • Cleaning and refinishing
  • Environmentally responsible disposal or recycling
Opportunities in International Markets
  • Need to service physical goods sold abroad
  • Ability to find new markets in previously closed economies
  • Advances in technology create global electronic distribution channels
Opportunities from New Technology
  • More involvement of customers through self-service systems
  • Recording customer information in easily accessible data banks
How technology affecting the shape of service businesses? 

Answer:

Technology is changing the delivery of services, is adding to the ability to provide new services and alters the amount of customer contact some service providers have with their clients.

A wide variety of examples can be given including use of the Internet for share trading and shopping online, electronic toll booths on paid tollways, smart card technology on the railways and buses, entry into gymnasiums, etc.

Electronic ticketing on airlines, integrated voice response systems that allows a computer to answer calls (e.g., insurance companies, banks, etc.).

Paying for parking meters through mobile telephone technology and higher education delivered from a distance through the World Wide Web.  Some students may mention applications in a B2B (Business to Business) context.

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