Nature and scope of services

Dr. Manel Khadraoui

 Why Study Services?

• Services dominate most economies and are growing

rapidly:
– Services account for more than 60% of GDP worldwide
– Almost all economies have a substantial service sector
– Most new employment is provided by services
– Strongest growth area for marketing

• Understanding services offers you a personal

competitive advantage
 Services Dominate the Global
Economy
Contribution of Services to GDP globally

Industry 25%

Services 65%
Agriculture 3%
 What are services categories?
• Traditional service industries:
– leisure
– hospitality
– education
– health services
– financial
– insurance services
– professional
– business services
General Electric generally thought
of as major goods producer, who
now generate more than half of
their revenues from services.
Siemens offers consultancy
services to develop and sell
their product solutions to
their customers.

IBM offers information technology

consulting services to the
marketplace, competing with firms
such as Accenture, a traditional
pure service firm.
 Services are everywhere
• But also, traditional goods producers are now
turning to the service aspects of their
operations
– to establish a differential advantage in the
marketplace
– to generate additional sources of revenue for
their firms
 Service Products vs. Customer
Service & After-Sales Service

• A firm’s market offerings are divided into core product

elements and supplementary service elements

• Need to distinguish between:

– Marketing of services – when service is the core product
– Marketing through service – when good service increases the
value of a core physical good

• Manufacturing firms are reformulating and enhancing

existing added-value services to market them as stand-
alone core products
Service – A Process Perspective

• Differences exist amongst services depending on what

is being processed

• Classification of services into

– People processing
– Possession processing
– Mental stimulus processing
– Information processing
 Goods/services
• The distinction between goods and services is
not always perfectly clear.
• Providing an example of a pure good or a pure
service is very difficult.
• A pure good would imply that the benefits
received by the consumer contained no
elements supplied by service.
• Similarly, a pure service would contain no
tangible elements
• In this course the term product is used to refer
to goods or services
• goods can be defined as objects, devices, or
things
• services can be defined as deeds, efforts, or
performances
 the primary difference between goods and
services is the property of intangibility
 scale of market entities
• The scale that displays a range of products
along a continuum based on their tangibility
ranging from tangible dominant to intangible
dominant.
The scale of market entities
 What Are Services?

• The historical view

– Smith (1776): Services are different from goods because they
are perishable
– Say (1803): As services are immaterial, consumption cannot be
separated from production

• A fresh perspective: Benefits without Ownership

– Rental of goods:
• (a) Payment made for using or accessing something – usually for a
defined period of time – instead of buying it outright and
• (b) Allows participation in network systems that individuals and
organizations could not afford
 Definition 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 customers at specific
times and places, as a result of bringing about a
desired change in—or on behalf of —the
recipient of the service.
 Characteristics of services

1 Intangibility
• This is the most basic and often quoted
difference between goods and services.
• Unlike tangible goods, services cannot
generally be seen, tasted, felt, heard or
smelled before being consumed.
• The potential customer is often unable to
perceive the service before (and sometimes
during and after) the service delivery.
2. Inseparability (or simultaneous production
and consumption)
• There is a marked distinction between
physical goods and services in terms of the
sequence of production and consumption:
Physical goods Services

Production
Storage
Sold Sold
Consumed Produced and consumed at
the same time
3. Perishability
• services cannot be saved,
• their unused capacity cannot be reserved,
• they cannot be inventoried.
4. Heterogeneity: the variability of service delivery
• the variation in consistency from one service transaction to the next
• Service encounters occur in real time, and consumers are often
physically present in the service factory, so if something goes wrong
during the service process, it is too late to institute quality control
measures before the service reaches the customer.
• Heterogeneity, almost by definition, makes it impossible for a
service operation to achieve 100 percent perfect quality on an
ongoing basis.
 isolate mistakes and correct them over time
• not only does the consistency of service vary from firm to firm and
among personnel within a single firm, but it also varies when
interacting with the same service provider on a daily basis.