MARKETING OF

SERVICES - I

The Service Economy

 Service Economy – An Introduction
2
1. In a service economy a large proportion of the
working population is employed in the service
sector and not in agriculture and manufacturing
sectors.
2. Services sector is the largest and fastest growing
sector in the world economy, accounting for the
largest share in the total output and employment
in most developed countries, such as USA, UK,
Australia, France, Germany, Japan, Canada, etc.
3. The share of services sector in total GDP is 47
percent in low income countries, 53 percent in
middle income countries and 73 percent in high
income countries.

MARKETING OF SERVICES - I
 Service Economy – An Introduction
3 5. In Pakistan, the share of
services are increasing in all
sectors of economy.
6. The growth rate of services
sector in Pakistan is higher
than the growth rate of agriculture
and industrial sectors.
7. Services sector accounts for 54
percent of GDP and little over
one-third of total employment.
8. Services sector has strong
linkages with other sectors of the
economy, as it provides essential
inputs to agriculture sector
and manufacturing sector.

MARKETING OF SERVICES - I
 Service Economy – An Introduction
4 Market-based Classification of Services Sector

MARKETING OF SERVICES - I
 Service Economy – An Introduction
5
Views of Economists and Marketers about the Service Economy

1. Fuchs Wrote in 1968: The United States has become

the world’s first Service Economy during the period
followed by World War II, first nation in which half of
the population is involved in intangible services
other than food automobiles, houses, clothes, etc.
2. Smith narrated in 1972: To measure and interpret
service output we should identify weaknesses in the
statistical treatment of services.
3. Heilbroner’s View: The growth of services increases the
possibility of Government interference in the market
mechanism towards a planned economic system in
order to maintain essential services.

MARKETING OF SERVICES - I
 Factors Highlighting the Importance of
6 Service Economy
1. Services and Employment

Economic Activities are divided into three classes:

 Primary Activities: Agriculture, Forestry, Fishing…
 Secondary Activities: Manufacturing & Construction
Industries…
 Tertiary Activities: Services & Distributive Trades…

MARKETING OF SERVICES - I
 Factors Highlighting the Importance of
7 Service Economy
1. Services and Employment
a) There has been a proportionate increase in the
numbers employed in service industries today.
b) The composition of the workforce in the service industries
has dramatically changed. More women than men now
work in these industries worldwide.
c) Even today, the service industries still employ a very high
percentage of part time workers in employment.
d) The growing importance of customer service
excellence has made organizations to employ people
exclusively for the purpose. However, in many service
organizations Information Communications
Technology is supplementing as well as replacing
human effort with regard to promoting CRM.

MARKETING OF SERVICES - I
 Factors Highlighting the Importance of
8 Service Economy
2. Services and Output
a) In most economies today, the tertiary sector
(services) has surpassed the secondary sector
(manufacturing and construction) with regard to
its contribution to the GDP.
b) Service output is measured on the basis of:
a) Quality of Service
b) Quantity of Service
c) It is comparatively difficult to measure the actual
output of services due to the typical
characteristics of services.
d) Today, CRM is also responsible for increasing the
service output based on customer satisfaction.
MARKETING OF SERVICES - I
 Factors Highlighting the Importance of
9 Service Economy
3. Services and Consumption
a) The increased expenditures in the provision of
services have also increased expenditures on
durable goods.
b) Changing lifestyles have given rise to increased
consumption of services.
c) Services have become an indelible part of our daily
life.
d) Increasing desire for convenience and the rise of
CSE.
e) Products with extra services.
f) Growth of professional and business-related
services.
MARKETING OF SERVICES - I
 Factors Highlighting the Importance of
10 Service Economy
4. Services and the Balance of Payments
a) The balance of payments (BOP) records all
financial transactions made between consumers,
businesses and the governments of two different
countries.
b) The BOP figures tell us about how much is being
spent by consumers and firms on imported goods
and services, and how successful firms have been
in exporting to other countries.
c) Inflows of foreign currency are counted as a positive
entry (e.g. exports sold overseas).
d) Outflows of foreign currency are counted as a negative
entry (e.g. imported goods and services bought).

MARKETING OF SERVICES - I
 Factors Highlighting the Importance of
11 Service Economy
4. Services and the Balance of Payments
e) Services is the second major category (after
goods) in the BOP Statement. Specifically, in
balance of payments, services comprise: travel
and transportation and items, such as
communications, financial and computer
services, royalties and license fees, many
types of other business services, personal,
cultural and recreational services,
government services, etc. that are becoming
increasingly important in international
transactions.

MARKETING OF SERVICES - I
 Reasons for the Growth of the Service Economy
12
1. Labour Productivity-related Reasons
a) A greater decline in hours worked per person in the service
sector than in the industrial and other sectors. Hence, more
people are attracted to this sector.
b) Higher compensation or daily rates in the service sector.
c) Increased part-time work in the service industry.
d) Labour working in the service sector can be easily trained as
compared to the technically proficient labour required in the
industry.
e) More rapid technological change in the industrial sector
than in the service sector. Hence, technology is replacing
labour, which is moving towards the service sector.

MARKETING OF SERVICES - I
 Reasons for the Growth of the Service Economy
13
2. The Growth in Intermediate Demand from Service Providers
Intermediate demand signifies providing inputs (services) to
manufacturing and other sectors of economy. Following
types of firms provide inputs or services to manufacturing and other sectors
of the economy:
 Specialist Firms provide services previously carried out by firms
themselves. For example, engineering services, personnel
services. Due to technological advancements and wanting to
achieve a competitive edge, companies are increasingly relying on
specialist firms.
 Alternatively Specialists Firms provide new services. For example,
data processing (vital for making strategic decisions in any firm).
 Other Service Institutions: Companies and other organizations are
using a wide array of services like accounting, construction,
banking, insurance, legal, research, advertising, public relations,
training, shipping, consultancy services.
MARKETING OF SERVICES - I
 Reasons for the Growth of the Service Economy
14
3. The Growth in the Final Demand of Services from Consumers
Increasing affluence Greater demand for lawn care, carpet cleaning and other
services that consumers used to provide for themselves.
More leisure time Greater demand for travel agencies, travel resorts, adult
education courses.
Higher percentage of Greater demand for daycare, nurseries, maid services, away
women in the labour from home meals or fast foods.
force.
Greater life expectancy Greater demand for nursing homes and health care services.
Greater complexity of Greater demand for skilled specialists to provide maintenance
products for such complex products as cars and home computers.
Increasing complexity Greater demand for income tax consultants, marriage
of life counsellors, legal advisors, employment services.
Greater concern about Greater demand for purchased or leased services, such as
ecology and resource door to door bus service and car rental instead of car
scarcity ownership.
Increasing number of The computer sparked development of such service
new products industries as programming, repair, and time sharing.
MARKETING OF SERVICES - I
 The Service Economy and Marketing
15
1. Growth of the service economy has also increased
the interest of marketers in the sector.
2. New marketing concepts and practices are being
extended to a wide array of service contexts.
3. Keeping in view the distinct nature of services,
meaningful marketing strategies are being
developed.
4. Practical difficulty in adequately understanding
and defining the true essence of a service.

MARKETING OF SERVICES - I