Service (economics)

For other uses, see Service.
A bellhop is an example of a service/occupation.

In economics, a service is an economic activity where an immaterial exchange of value occurs. When a service such as labor is performed the buyer does not take exclusive ownership of that which is purchased, unless agreed upon by buyer and seller. The benefits of such a service, if priced, are held to be self-evident in the buyer's willingness to pay for it. Public services are those, that society (nation state, fiscal union, regional) as a whole pays for, through taxes and other means.

Using resources, skill, ingenuity, and experience, service providers effect benefit to service consumers. Thereby, service providers participate in an economy without the restrictions of carrying inventory (stock) or the need to concern themselves with bulky raw materials. Furthermore, their investment in expertise does require consistent service marketing and upgrading in the face of competition.

Five I's of Services

Services can be paraphrased in terms of their key characteristics, sometimes called the "Five I's of Services".

Intangibility

Services are intangible and insubstantial: they cannot be touched, gripped, handled, looked at, smelled, tasted. Thus, there is neither potential nor need for transport, storage or stocking of services. Furthermore, a service can be (re)sold or owned by somebody, but it cannot be turned over from the service provider to the service consumer. Solely, the service delivery can be commissioned to a service provider who must generate and render the service at the distinct request of an authorized service consumer.

Inventory (perishability)

Services have little or no tangible components and therefore cannot be stored for a future use. Services are produced and consumed during the same period of time.

Services are perishable in two regards:

Inseparability

The service provider is indispensable for service delivery as they must promptly generate and render the service to the requesting service consumer. In many cases the service delivery is executed automatically but the service provider must preparatorily assign resources and systems and actively keep up appropriate service delivery readiness and capabilities. Additionally, the service consumer is inseparable from service delivery because he is involved in it from requesting it up to consuming the rendered benefits. Examples: The service consumer must sit in the hairdresser's shop & chair yor in the plane & seat; correspondingly, the hairdresser or the pilot must be in the same shop or plane, respectively, for delivering the service.

Inconsistency (variability)

Each service is unique. It is one-time generated, rendered and consumed and can never be exactly repeated as the point in time, location, circumstances, conditions, current configurations and/or assigned resources are different for the next delivery, even if the same service consumer requests the same service. Many services are regarded as heterogeneous or lacking homogeneity and are typically modified for each service consumer or each new situation (consumerised). Example: The taxi service which transports the service consumer from his home to the opera is different from the taxi service which transports the same service consumer from the opera to his home – another point in time, the other direction, maybe another route, probably another taxi driver and cab.

Involvement

One of the most important characteristics of services is the participation of the customer in the service delivery process. A customer has the opportunity to get the services modified according to specific requirement.

Each of these characteristics is retractable per se and their inevitable coincidence complicates the consistent service conception and make service delivery a challenge in each and every case. Proper service marketing requires creative visualization to effectively evoke a concrete image in the service consumer's mind. From the service consumer's point of view, these characteristics make it difficult, or even impossible, to evaluate or compare services prior to experiencing the service delivery.

Mass generation and delivery of services is very difficult. This can be seen as a problem of inconsistent service quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent service quality. For many services there is labor intensity as services usually involve considerable human activity, rather than a precisely determined process; exceptions include utilities. Human resource management is important. The human factor is often the key success factor in service economies. It is difficult to achieve economies of scale or gain dominant market share. There are demand fluctuations and it can be difficult to forecast demand. Demand can vary by season, time of day, business cycle, etc. There is consumer involvement as most service provision requires a high degree of interaction between service consumer and service provider. There is a customer-based relationship based on creating long-term business relationships. Accountants, attorneys, and financial advisers maintain long-term relationships with their clients for decades. These repeat consumers refer friends and family, helping to create a client-based relationship.

Specification

Any service can be clearly and completely, consistently and concisely specified by means of the following 12 standard attributes which conform to the MECE principle (Mutually Exclusive, Collectively Exhaustive)

  1. Service consumer benefits – describe the (set of) benefits which are triggerable, consumable and effectively utilizable for any authorized service consumer and which are rendered to him as soon as he triggers one service. The description of these benefits must be phrased in the terms and wording of the intended service consumers.
  2. Service-specific functional parameters – specify the functional parameters which are essential and unique to the respective service and which describe the most important dimension(s) of the servicescape, the service output or the service outcome, e.g. maximum e-mailbox capacity per registered and authorized e-mailing service consumer.
  3. Service delivery point – describes the physical location and/or logical interface where the benefits of the service are triggered from and rendered to the authorized service consumer. At this point and/or interface, the preparedness for service delivery readiness can be assessed as well as the effective delivery of each triggered service can be monitored and controlled.
  4. Service consumer count – specifies the number of intended, clearly identified, explicitly named, definitely registered and authorized service consumers which shall be and/or are allowed and enabled to trigger and consume the commissioned service for executing and/or supporting their business tasks or private activities.
  5. Service delivering readiness times – specify the distinct agreed times of every day of the week when
    • the described service consumer benefits are
      • triggerable for the authorized service consumers at the defined service delivery point
      • consumable and utilizable for the authorized service consumers at the respective agreed service level
    • all the required service contributions are aggregated to the triggered service
    • the specified service benefits are completely and terminally rendered to any authorized triggering service consumer without any delay or friction. The time data are specified in 24 h format per local working day and local time UTC, referring to the location of the intended and/or triggering service consumers.
  6. Service consumer support times – specify the determined and agreed times of every day of the week when the triggering and consumption of commissioned services is supported by the service desk team for all identified, registered and authorized service consumers within the service customer's organizational unit or area. The service desk is/shall be the so-called the Single Point of Contact (SPoC) for any authorized service consumer inquiry regarding the commissioned, triggered and/or rendered services, particularly in the event of service denial, i.e. an incident. During the defined service consumer support times, the service desk can be reached by phone, e-mail, web-based entries, and fax, respectively. The time data are specified in 24 h format per local working day and local time UTC, referring to the location of the intended service consumers.
  7. Service consumer support language – specifies the national languages which are spoken by the service desk team(s) to the service consumers calling them.
  8. Service fulfillment target – specifies the service provider's promise of effectively and seamlessly deliver the specified benefits to any authorized service consumer triggering a service within the specified service delivery readiness times. It is expressed as the promised minimum ratio of the count of successful individual service deliveries related to the count of triggered service deliveries. The effective service fulfillment ratio can be measured and calculated per single service consumer or per service consumer group and may be referred to different time periods (workhour, workday, calendarweek, workmonth, etc.)
  9. Service impairment duration per incident – specifies the maximum allowable elapsing time [hh:mm] between
    • the first occurrence of a service impairment, i.e. service quality degradation, service delivery disruption or service denial, whilst the service consumer consumes and utilizes the requested service,
    • the full resumption and complete execution of the service delivery to the content of the affected service consumer.
  10. Service delivering duration – specifies the promised and agreed maximum allowable period of time for effectively rendering all specified service consumer benefits to the triggering service consumer at his currently chosen service delivery point.
  11. Service delivery unit – specifies the basic portion for rendering the defined service consumer benefits to the triggering service consumer. The service delivery unit is the reference and mapping object for the Service Delivering Price, for all service costs as well as for charging and billing the consumed service amounts to the service customer who has commissioned the service delivery.
  12. Service delivering price – specifies the amount of money the commissioning service customer has to pay for a distinct service delivery unit or for a distinct amount of service delivery units. Normally, the service delivering price comprises two portions
    • a fixed basic price portion for basic efforts and resources which provide accessibility and usability of the service delivery functions, i.e. service access price
    • a price portion covering the service consumption based on
      • fixed flat rate price per authorized service consumer and reference period for an unlimited amount of consumed services,
      • staged prices per authorized service consumer and reference period for staged amounts of consumed services,
      • fixed price per single consumed service delivering unit.

Delivery

Coffee house - a type of service delivery.

The delivery of a service typically involves six factors:

The service encounter is defined as all activities involved in the service delivery process. Some service managers use the term "moment of truth" to indicate that defining point in a specific service encounter where interactions are most intense.

Many business theorists view service provision as a performance or act (sometimes humorously referred to as dramalurgy, perhaps in reference to dramaturgy). The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props. A script is a sequence of behaviors followed by all those involved, including the client(s). Some service dramas are tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors.

In some service industries, especially health care, dispute resolution, and social services, a popular concept is the idea of the caseload, which refers to the total number of patients, clients, litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employees must balance the needs of any individual case against the needs of all other current cases as well as their own personal needs.

Under English law, if a service provider is induced to deliver services to a dishonest client by a deception, this is an offence under the Theft Act 1978.

Lovelock has used two issues of number of delivery sites (whether single or multiple) and the method of delivery to classify services in a 2 x 3 matrix. Then implications here are that the convenience of receiving the service is the lowest when the customer has to come to the service and must use a single or specific outlets. As his options multiply, the degree of convenience can go on rising, from being able to choose desirable sites, .to getting access at convenient locations. (Table 1.6.

Service-commodity goods continuum

Service-Commodity Goods continuum

There has been a long academic debate on what makes services different from goods. The historical perspective in the late-eighteen and early-nineteenth centuries focused on creation and possession of wealth. Classical economists contended that goods were objects of value over which ownership rights could be established and exchanged. Ownership implied tangible possession of an object that had been acquired through purchase, barter or gift from the producer or previous owner and was legally identifiable as the property of the current owner.

Adam Smith’s famous book, The Wealth of Nations, published in Great Britain in 1776, distinguished between the outputs of what he termed "productive" and "unproductive" labor. The former, he stated, produced goods that could be stored after production and subsequently exchanged for money or other items of value. The latter, however useful or necessary, created services that perished at the time of production and therefore did not contribute to wealth. Building on this theme, French economist Jean-Baptiste Say argued that production and consumption were inseparable in services, coining the term "immaterial products" to describe them.

Most modern business theorists see a continuum with pure service on one terminal point and pure commodity good on the other terminal point.[1] Most products fall between these two extremes. For example, a restaurant provides a physical good (the food), but also provides services in the form of ambience, the setting and clearing of the table, etc. And although some utilities actually deliver physical goods — like water utilities which actually deliver water — utilities are usually treated as services.

In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular usage occurs frequently in retailing.

List

The following is a complete list of service industries, grouped into sectors. Parenthetical notations indicate how specific occupations and organizations can be regarded as service industries to the extent they provide an intangible service, as opposed to a tangible good.

List of countries by tertiary output

Service output as a percentage of the top producer (USA) as of 2005

Below is a list of countries by service output at market exchange rates in 2015.

Largest countries by tertiary output according to IMF and CIA World Factbook, 2015
Economy
Countries by tertiary output in 2015 (billions in USD)
(01)  United States
14,083
(—)  European Union
13,483
(02)  China
5,202
(03)  Japan
3,078
(04)  Germany
2,335
(05)  United Kingdom
2,248
(06)  France
1,948
(07)  Italy
1,362
(08)  Brazil
1,340
(09)  India
1,336
(10)  Canada
1,132
(11)  Spain
878
(12)  South Korea
845
(13)  Australia
844
(14)  Mexico
740
(15)  Russia
702
(16)  Netherlands
561
(17)   Switzerland
499
(18)  Turkey
488
(19)  Belgium
362
(20)  Taiwan
358

The twenty largest countries by tertiary output in 2015, according to the IMF and CIA World Factbook.

See also

References

  1. ↑ Anders Gustofsson and Michael D. Johnson, Competing in a Service Economy (SanFrancisco: Josey-Bass, 2003), p.7.
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