UNIT-2

Classification of Services

➢ Different schemes of Classifications

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, public transportation. On the other hand services that include objects include
repairs and maintenance, dry cleaning, banking, legal services, insurance, etc.

Classification of services can be done on the basis of two points. These two points or factors,
are further sub divided into 2 further variables. All in all, service classification considers four
types of people or objects.

1) Classification of service based on tangible action

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

a) Services for people – Like Health care, restaurants and saloons, where the service is
delivered by people to people.

b) Services for goods – Like transportation, repair and maintenance and others. Where services
are given by people for objects or goods.
2) Classification of services based on intangibility

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.

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

b) 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:

1. Business services.
2. Communication services.
3. Construction and related engineering services.
4. Distribution services.
5. Educational services.
6. Environmental services.
7. Financial services.
8. Health-related and social services.
9. Tourism and travel-related services.
10. Recreational, cultural, and sporting services.
 11. Transport services.
12. Other services not included elsewhere.

Characteristics of Services

Service industries contribute the major percentage of the US GDP. It’s important to
understand that this shift from the manufacturing sector to the service sector isn’t limited to
the United States. Increasingly, the world economy is being characterized as a service
economy. Looking at economic history, we can see a natural evolution in developing
countries from the agricultural industry to the service sector as the mainstay of the economy.
That’s why it’s critical for marketers to understand the characteristics of services.

As we pointed out above, some services come from physical products, such as getting a
haircut or having your income tax return prepared by a professional. But other services are
completely intangible. When you rent a hotel room, travel on an airplane, visit your doctor,
attend a professional sporting event, or get advice from a lawyer or an accountant, you’re
buying a service, so a marketer needs to consider the characteristics of services in order to get
the right marketing messages to the right target market.

Service Intangibility

By their very nature, services are intangible. This means they can’t be seen, tasted, felt,
smelled, or heard before they are purchased. Consider the last time you purchased automobile
insurance for your car. Other than the physical policy the company sends you (the only
tangible asset), what you’ve paid for is completely intangible—it’s the company’s promise to
pay claims against the policy.

Intangible services have a number of implications in marketing. The very fact that there’s
nothing to touch, hear, smell, and so on typically increases the level of uncertainty that a
consumer faces when choosing between services offered by your organization or those of
competitors. Intangible services can seldom be tried out, inspected, or even given a “test
drive” by a customer. Customers have to rely on the word of the marketers in order to assess
what they’re actually going to get in return for what they’ve paid. In effect, they are buying a
promise.

Savvy marketers reduce this uncertainty by creating physical “evidence” that allows the
consumer to picture the service before it is purchased. For example, a hair salon may have
imaging software that predicts how you would look with different hairstyles or colors.
Companies like Zenni and Eyebuydirect have a virtual mirror that allows you to “try on
eyeglasses” and see how the selected frames look on your face before you purchase.7

Service Inseparability

The order of production and consumption between a physical product and a service differs.
Think about a box of Girl Scout cookies, a physical good or product. The cookies were
produced, stored, sold, and finally consumed. That’s not the way it works with services. Like
goods, services are sold, but they are produced and consumed simultaneously. They can’t be
separated from the service providers, whether they are people or equipment. 8 For example, try
to get money out of your bank on a weekend or evening without an ATM, or try to get a
haircut without the physical presence of your stylist. That’s the concept of service
inseparability—you can’t separate the delivery of the service from the presence of the
customer. In other words, the service provider is physically connected to the service and is
evaluated on the basis of their communication skills, language, demeanor, personal hygiene,
and clothing.

The impact to the marketer in these services—in which the service provider and customer
must both be present—is how service providers (sometimes called frontline employees)
conduct themselves in the presence of the customer because it may determine the likelihood of
repeat business.9 There are also other marketing implications with this concept, such as
customer cooperation and participation, not to mention the influence from other customers
who may be present.

Service Variability

Have you ever gone to a restaurant and had stellar customer service? You were seated
promptly by a cheerful hostess; the busser filled up your water glass and refilled it several
times during the evening; the waitstaff was attentive but not to the point of being annoying;
and your dirty dishes were cleared promptly. But perhaps the next time you visit the same
restaurant, your experience isn’t quite as amazing. The hostess isn’t as cheerful, and it takes
her several minutes to seat you. It takes a while for someone to refill your water glass. The
waitstaff isn’t nearly as attentive as they were during your first visit. What went wrong?

Perhaps what you’ve experienced is what’s known as service variability—the quality of the
service depends on who provides it, when it is provided, and how it is provided. For
example, Delta Air Lines prides itself on improving peoples’ lives and exceeding customer
expectations.10 However, because services are provided by humans who have human
experiences where they may not be feeling well or they are having a bad day, the service may
be variable between employees. One Delta employee may be cheerful and efficient, while
another lags due to their energy and state of mind.

This is a challenge to marketers because products generally have little variability: each unit is
built to certain specifications. For example, if you buy an Apple iPad Pro and your classmate
purchases the same model, it’s likely that the two iPads will be virtually identical. The case
color may be different, but otherwise they are the same. That’s not the case with a service,
where there will undoubtedly be variations in the quality of the service depending on who
offers the service, when it is offered, and at which location. Service-based companies need to
rely on standardizing processes to the extent possible, frequent audits, customer surveys, and
most importantly, customer feedback.

Service Perishability

Unlike most goods, services can’t be produced and stored for later use or sale. Services are, in
effect, performances by the service provider. That’s the concept of service perishability. Did
you miss tonight’s concert because of traffic? Too bad, because a ticket for tonight’s concert
can’t be used for tomorrow night’s performance. Hotel rooms that are not occupied, airline
seats that are not purchased, and unused gym memberships cannot be reclaimed. 11 Because
these items can’t be stored for later use, they are considered a perishable service. This is
particularly important for marketers because the perishability factor and the fluctuating
demand poses special problems in capacity planning, scheduling, product planning, and
pricing.

One way that marketers deal with this problem is by manipulating demand. Consider how
many restaurants offer “happy hours” with discounted food and drinks during the late
afternoon or early evening. Restaurants do this because this time is typically the period where
there is a lull before the start of the dinner rush.

Goods Vs Services
Role of Service Sector in Modern Economic Development of India
The economic development of any country is directly dependent on the advancement and
progress of the three sectors of the economy viz. primary sector, secondary sector, and tertiary
sector. The primary sector of an economy making direct use of natural resources that are
involved in the production and extraction of raw materials from agriculture, fishing, forestry,
mining, dairy, etc. and secondary sector also known as the industrial sector is associated
with the activities which involve the conversion of raw material into usable products. The
majority of India’s population is engaged in the primary sector which in turn is the main reason
for underemployment in the country. Though in the last couple of years, manufacturing has
been a great focus not much growth has been seen in the secondary sector (includes heavy
manufacturing, light manufacturing, energy-producing, food processing, etc.) due to lack of
infrastructure. So in order to quickly absorb this underemployed population, there is a need to
shift to the tertiary sector.
The tertiary sector also known as the service sectorinvolves a variety of things in its
umbrella. Some of which are health and welfare, tourism, leisure, and recreation activities as
well as retailing and sales of goods to the people. In the past six years, the service sector has
undergone a great evolution which in turn has given it the independent status of the productive
sector of the country. Moreover, this sector also provides a major impact on foreign exchange
and thus contributes greatly to the modern economic development of the country.

Five Main Advantages of the Service Sector

1. No Inventory: In the service sector, there is no need to built-up a reserve of inventory
that needs to be stored in a warehouse. Because the product that you are selling is your
skills and expertise wherein you’ll only need to have the necessary equipment required to
perform the required services, no warehouse full of inventory needed.
2. Easy to start up: In comparison to other business industries, starting a business in the
service sector is relatively easy. Because business in the service sector requires little more
than a license, phone, and a person with the required skills and expertise to get up and
going. This not only makes it quite easier but also very affordable to get started.
3. Flexible hours: Working in the service sector provides flexibility in the working hours,
which in turn allows you to get an opportunity to further increase your skill and education
and to accomplish other important tasks at times you might not otherwise be able to.
4. Greater adaptability to changes: The service sector companies are able to adapt to the
changes in customer needs much easily and quickly in comparison to product-based
companies.
5. Provides job even during economic crisis: During an economic dip, when people are
cutting down their expenditure and are only paying for basic necessities, the service sector
helps to keep the job and bring in the revenue as service sector experts are always in
demand.

Significance of the Service Sector

1. Gross Value Added (GVA) at current prices for the services sector is estimated at 96.54
lakh crore INR in 2020-21 and accounts for 53.89% of total India’s GVA of 179.15 lakh crore
Indian rupees. Thus, holds the highest share in the country’s Net National Product.
2. Promotes industrialization: The service sector provides various facilities such as
transportation, banking, electricity, repair, or communication in support of the distribution of
the manufactured goods which directly affects the development of an industry in a country.
 For example-transport systems helps to carry laborer, raw material and finished goods to their
destination, communication networks are required to make a market for the product and for
the industries to prosper, we require banking and electricity. Moreover, the feedback from the
marketplace, fast delivery as well as the ability to customize products are all dependent on the
service industry.
3. According to World Bank data in the year 2017, India has become the 6th largest
economy with a GDP of 2.59 trillion USD, demoting France to the 7th position, allowing for
the growth of the service sector in the country.
4. Growth of Agriculture: By providing network facilities, service sectors help in the
development of agricultural products such as helping in the transport of raw material and
finished goods from one place to another.
5. Increase in the productivity of the goods: The service sector helps in providing
appropriate technical knowledge/education to the workers as well as provide them with proper
medical facilities. Moreover, the service sector also facilitates an organized network of
communication and transport systems which helps in increasing mobility and information
among the workers. This results in an increase in the productivity
6. Provides Good Quality Life: By providing better services in the field of education and
health, banking and insurance as well as communication and transportation, the service sector
has helped in increasing the quality of life in the country and thus helping in raising the
country’s human development index (HDI),
7. Growth of Market: This sector provides various services catering to the needs of both
primary and secondary sectors and thus helps in providing a market for the finished goods as
well as raw materials or semi-finished goods for both i.e. agriculture and industries.
8. Increase in international trade: India’s trade in services recorded substantial growth as
the country became globally competitive in ICT services which increased exports manyfold
and led to an increase in India’s trade surplus. Service exports have contributed to the inclusive
economic processes by increasing the amount of well-paid jobs and by reallocating labor to a
high-productivity sector.
9. Removes regional disparities: The service sector has made it possible to connect every
small town and village through a well-organized system of communication and transport.
Moreover, the expansion of education, medical as well as banking services in various
backward areas of the country has helped in removing the regional imbalances and disparities
throughout the nation.

Importance of the Service Sector

As mentioned earlier, the contribution of the service sector to the Indian economy is
unparalleled. It accounts for over 50% of the GVA (Gross Value Added). Also, the share of
the tertiary sector in India’s net national product is the highest. Some of the points that explain
the importance of the service sector are:

• Promotion of industrialisation – The industrial sector depends heavily on the tertiary sector.
For example, to operate an industry, raw materials must be transported from one place to
another. Transportation comes under the tertiary sector. Similarly, the finished products need
to be distributed to marketplaces which also requires transportation. Moreover, the health of
industry workers is kept in check by the healthcare industry. The industry’s finances are
handled by some financial institution, which again comes under the service sector
• Increase in productivity – Both education and healthcare come under the service sector.
When an individual gets a good education and proper access to healthcare, their productivity
is more likely to increase than someone with low levels of education and poor health. Hence,
the service sector improves the overall health of the economy by increasing workers’
productivity
• Good Quality of Life – The employees working in the tertiary sector generally have a better
quality of life. They earn more money and work in less hazardous conditions. They can afford
several luxuries, which improve their quality of life
• Market Growth – The tertiary sector improves the quality of the finished goods produced in
industries. The process of making the products is also improved, thanks to the service sector.
This, in turn, enables the growth of the market

Advantages of the Service Sector

The service sector has certain other advantages also. These are listed as follows:

• No requirement of an inventory: This is one of the most significant advantages from the
business owner’s perspective. Since the service sector relies on offering intangible products,
there is no need for extra space to store goods and raw materials. Here, skills and expertise are
sold, which do not require an inventory. This reduces the cost of production
• Easy to start: It is easier to start a business in the tertiary sector because there is no
compulsory need to set up a manufacturing plant or procure raw materials. For example, any
company offering IT-enabled services only needs the internet and laptops to operate. The
work can be done from home too, so the need for a large office is also not there. This is why
most start-ups in India come under the purview of the service sector
• Working flexibility: Unlike in primary and secondary sector jobs, the jobs in the tertiary
sector provide flexibility to work. A worker can work from anywhere based on his
convenience and preference. It was easiest for the service sector employees to work from
home during the COVID-19 pandemic
• High adaptability: Service sector companies are more dynamic, i.e. they adjust better to
changes