The modern global economy is increasingly characterized as a service economy. This is primarily due to the increase in the service sector in the economy of most developed and developing countries. The growth of the services sector is one of the indicators of the country's economic progress.
Economic history suggests that all developing countries must make the transition from agriculture to industry, and then to the service sector. This transition has also led to a change in the definition and characteristics of goods and services.
What is a service?
There are many definitions of services, the two most clearly describing the concept:
- A service is a type of activity, the results of which have no material expression, are realized and consumed in the process of implementing this activity.
- A service is goods that are provided not in the form of physical objects, but in the form of activity (intangible goods).
Product Definition
A product is a product of nature and human labor or only human labor in tangible and intangible substance and in the form of services, which, due to its properties, is able to satisfy existing or perceived social needs and is intended for exchange and trade.
A product is a product of labor, not produced for personal consumption, but for sale, tangible and intangible assets, as well as securities and derivatives used in any operations, except for operations on their issue (issue) and redemption.
Product Attributes:
- The ability to satisfy a specific human need.
- Suitability for exchange for other goods.
The difference between goods and services
The following are fundamental differences between physical goods and services.
Goods | Services |
Physical goods | Process or activity |
Material | Intangible |
Homogeneous | Heterogeneous |
Consumption occurs after production and delivery | Production, supply and consumption are simultaneous processes |
Can be stored | Cannot be stored |
Transfer of ownership is possible | Transfer of ownership is not possible |
Service Classification
There are three types of services: business services, personal services, and social services.
Business services - services that support the daily activities of a business, but are not a product, for example, IT services. Other services that a business enterprise may require for the smooth functioning and management of its activities include banking, warehousing, insurance, communications, transportation, and more.
Personal services are commercial activities provided to individuals in accordance with their individual needs. The service here is personalized for the client. Some examples of personal services are cosmetology, food, hotel and accommodation, medicine, any art services.
Social services are important public services. They are provided by the government or non-profit organizations. These services are aimed at achieving social equality in society and are not provided with a motive for profit. Social services include: education, medical facilities and so on.
A more detailed classification and characterization of services is given below.
By field of activity, the services are divided into:
By the nature of the provision:
- Paid or market.
- Free or nonmarket.
By appointment:
By nature of consumption:
According to the form of ownership of their manufacturers:
By funding sources:
- Budgetary.
- Self-financed.
- Mixed.
Legal status:
At the place of service:
By sector of the economy:
By sectoral origin: management, science, culture, health care and so on.
By types of services: management, information, transport and so on.
Key Features
The following features apply universally to any service. The most important characteristics of services are:
- Lack of ownership.
- Intangibility.
- Inseparability.
- Inconstancy.
- Fragility.
- Interchangeability.
Lack of ownership is one of the most obvious characteristics of a service. You cannot own or store a service; it can be done. Unlike goods having a material form, a service is not property. This feature is closely related to several other characteristics of services, such as intangibility, inseparability and fragility.
Intangibility means that the service cannot be picked up, touched. For example, airline passengers only have a ticket and a promise that they will be at their destination at a specific time. The problem of intangibility is urgent for potential customers, because it is difficult to assess in advance the quality of the services provided.
Service characteristics include inseparability, which means that services are produced and consumed simultaneously. It also implies that services cannot be separated from their providers. Unlike services, physical goods are produced, then stored, then sold, and later consumed. Services are first sold, then produced and consumed at the same time.
Variability or variability refers to the fact that the quality of services can vary greatly depending on who provides them, when, where and how. Due to the time-consuming nature of services, there is a big difference in their quality; they can be provided by different people or even by the same providers at different times.
Durability means that services cannot be stored for future sale or use. This is one of the most important characteristics of services, as it can have a significant impact on financial results. Service companies use various methods to create a better match between supply and demand.
Interchangeability suggests that goods can replace services that meet similar needs, and vice versa. As a result, there is competition between services and goods.
Determining the quality of service
The quality of service (SQ) in its modern conceptualization is a comparison of the expected result (E) with the actual result - the characteristic of the service (P), which leads to the equation SQ = P - E.
A business with a high quality of service will meet or exceed customer expectations, while remaining economically competitive. Empirical studies show that improving service quality improves profitability and long-term economic competitiveness. Improving the quality of service can be achieved by improving operational processes; identification of problems and their solution; establishing reliable and reliable indicators of service efficiency and measuring customer satisfaction and other results.
Characterization of the quality of services is considered in two aspects:
- Technical quality: what the client receives as a result of the interaction (for example, food in a restaurant, a room in a hotel).
- Functional quality: how the customer receives the service; the nature of the service (e.g. courtesy, attentiveness, promptness).
Technical quality is relatively objective and therefore easy to measure. However, when trying to evaluate functional quality, difficulties arise.
Service life cycle
Each product or service goes through a specific life cycle. Lifecycle management is a key objective of marketing and sales management. The model shown below describes the relationship between sales and profit from a product or service. The model defines five stages of the life cycle:
- Stage of development - a product or service is being developed, it has not yet entered the market, therefore, the enterprise bears costs.
- Stage of implementation - a product or service is placed on the market, sales are slowly growing, profit still does not cover expenses.
- Stage of growth - sales are growing, profit is turning into positive numbers.
- Repayment stage - sales continue to grow, but profits begin to decline (falling price).
- Stage of decline - a gradual decline in sales and profits.
Then the organization either changes the marketing system, improves the characteristics of products or services, and sales grow again. Or the project is dying.
Service Marketing
Service marketing is a broad category of marketing strategies aimed at providing services. This includes the entire service, ranging from personal services such as medical care and spa treatments, to rental vehicles and premises. Any method that creates benefits for a service company is a valid approach, including informational content, advertising offers, advertisements and many other marketing materials.
Service Market Characteristic
Segmentation, targeting and positioning are strategic marketing fundamentals used to create competitive advantages that form the organization’s success story. Market definition is the basis for creating a service organization. The characteristics of the goods and the work of services differ in the market.
Market segmentation is a strategy that recognizes the need for “specialization” in accordance with the needs of a market segment, and then tries to become a leader in this segment. Segmentation of the service market is defined as the process of dividing the market into separate groups that have common characteristics of the work of services and the needs of customers or consumption patterns.
Why is market segmentation important?
- Identifying a market niche leads to more efficient use of resources.
- Segmentation improves the manageability of the market by dividing it into smaller parts.
- Market definition helps improve a company's ability to meet customer needs.
The importance of the service market for the global economy
Without a doubt, the service market has grown in recent years and has contributed to the global economy. Today, services make up more than 65% of the gross world product. In developed countries, the service sector contributes more to economic growth than any other.