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MOS/U1 Topic 1 Definition, Characteristics and Classification of Services

A service is an act or performance offered by one party to another. Although the process may be tied to a physical product, the performance is essentially intangible and does not normally result in ownership of any of the factors of production.

Services are economic activities that create value and provide benefits for customer’s specific times and places, as a result of bringing about a desired change in – or on behalf of – the recipient of the service. Service is those separately identifiable, essentially intangible activities which provide want-satisfaction, and that are not necessarily tied to the sale of a product or another service. To produce a service may or may not require the use of tangible goods. However when such use is required, there is no transfer of title (permanent ownership) to these tangible goods.

One common method of defining a service is to distinguish between the ‘core’ and ‘peripheral’ elements of that service. The ‘core’ service offering is the ‘necessary outputs of an organisation which are intended to provide the intangible benefits customers are looking for’. Peripheral services are those which are either ‘indispensable for the execution of the core service or available only to improve the overall quality of the service bundle.

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.

Examples of services are-

Transportation & public utilities, Hotels and other lodging places, Rail-road transportation, Personal services, Local and inter-urban passenger transit, Business services, Trucking and warehousing, Auto repair, services and garages, Water transportation, Miscellaneous repair services, Air transportation, Motion pictures, Pipelines except natural gas, Amusement and recreation services, Health service, Communication, Legal services, Telephone and telegraph, Educational services, Radio and television broadcasting, Social services and membership organizations, Electricity, Gas, Sanitary services, Miscellaneous professional services, Wholesale trade, Private household services, Retail trade, Finance, insurance, and real estate, Banking, Military, Credit agencies other than banks, Government enterprises Security & commodity brokers, Local government, Real estate, Education, Holding and other investment companies and Other services.

7 Important Characteristics of Services

(i) Perish-Ability

Service is highly perishable and time element has great significance in service marketing. Service if not used in time is lost forever. Service cannot stored.

(ii) Fluctuating Demand

Service demand has high degree of fluctuations. The changes in demand can be seasonal or by weeks, days or even hours. Most of the services have peak demand in peak hours, normal demand and low demand on off-period time.

(iii) Intangibility

Unlike product, service cannot be touched or sensed, tested or felt before they are availed. A service is an abstract phenomenon.

(iv) Inseparability

Personal service cannot be separated from the individual and some personalised services are created and consumed simultaneously.

For example hair cut is not possible without the presence of an individual. A doctor can only treat when his patient is present.

(v) Heterogeneity

The features of service by a provider cannot be uniform or standardised. A Doctor can charge much higher fee to a rich client and take much low from a poor patient.

(vi) Pricing of Services

Pricing decision about services are influenced by perish-ability, fluctuation in demand and inseparability. Quality of a service cannot be carefully standardised. Pricing of services is dependent on demand and competition where variable pricing may be used.

(vii) Service quality is not statistically measurable

It is defined in form of reliability, responsiveness, empathy and assurance all of which are in control of employee’s direction interacting with customers. For service, customer’s satisfaction and delight are very important. Employees directly interacting with customers are to be very special and important. People include internal marketing, external marketing and interactive marketing.

Classifications of Services

In order to be able to make a clear and relevant classification of services, we would first need to understand the concept of the word itself. Services usually refer to processes and not physical products. To understand more, read this article on difference between goods and services. Some services may include people whereas other services (like online services) may including objects which are managed by people.

Examples of services which include people can be a hair salon, education, theater, restaurants, and public transportation. On the other hand services that include objects include repairs and maintenance, dry cleaning, banking, legal services, insurance, etc.

  1. Classification of service based on Tangible Action

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Wherever people or products are involved directly, the service classification can be done based on tangibility.

(i) Services for people: Like Health care, restaurants and saloons, where the service is delivered by people to people.

(ii) Services for goods: Like transportation, repair and maintenance and others. Where services are given by people for objects or goods.

  1. Classification of services based on Intangibility

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There are objects in this world which cannot be tangibly quantified. For example – the number of algorithms it takes to execute your banking order correctly, or the value of your life which is forecasted by insurance agents. These services are classified on the basis of intangibility.

(i) Services directed at people’s mind: Services sold through influencing the creativity of humans are classified on the basis of intangibility.

(ii) Services directed at intangible assets: Banking, legal services, and insurance services are some of the services most difficult to price and quantify.

The most intangible form of service output is represented by information processing. The customer’s involvement in this type is service is not required. Generally, customers have a personal desire to meet face to face but there is no actual need in terms of the operational process. Consultancy services can be an example of this type of services where the relationship can be built or sustained on trust or telephone contact. However, it is more indicated to have a face-to-face relationship in order to fully understand the needs of the customer.

A more general classification of services based on the type of function that is provided through them can be as follows:

  • Business services.
  • Communication services.
  • Construction and related engineering services.
  • Distribution services.
  • Educational services.
  • Environmental services.
  • Financial services.
  • Health-related and social services.
  • Tourism and travel-related services.
  • Recreational, cultural, and sporting services.
  • Transport services.
  • Other services not included elsewhere.
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