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What is Service Marketing

Service marketing is simply the process of promoting and selling a service or an


intangible good to a specific group of people. It is a new way of marketing that
has become very popular and helps companies all over the world promote their
services.

It looks at how a certain kind of service is advertised in the market. Though


service marketing is a unique idea, it needs a way to represent goods that can’t
be seen (services). Service marketing is different from product marketing, which
involves promoting a product that can be seen. Instead, service marketing
involves promoting a service that can’t be seen but is still sold to customers.

Service marketing encompasses all the activities and processes that promote
and deliver intangible services to consumers. Unlike product marketing, where
tangible objects are marketed, service marketing focuses on intangible aspects
such as experiences, expertise, and customer interactions. Services can include
various offerings, such as healthcare, hospitality, consulting, education, and
various professional services.Service marketing relies heavily on building
strong customer relationships and providing exceptional service quality. It goes
beyond advertising and promotion, as the primary goal is to create value for
customers and meet their unique needs.

Definition

American Marketing Association (1960) – “activities, benefits or


satisfactions which are offered for sale provided in connection with the sale
of goods”.

Philip Kotler in (1984 )– “any activity or benefit that one party can offer to
another that is essentially intangible and does not result in the ownership of
anything”
A few Examples of Service Marketing

To better understand service marketing, let's look at a few examples from


different industries:

1. Healthcare: A hospital offering personalized patient care programs, 24/7

accessibility to healthcare professionals, and online appointment booking


systems. Advance your career with healthcare management
courses tailored to equip you with the skills and expertise needed to
excel in this vital field.

2. Hospitality: A hotel providing exceptional concierge services,


personalized welcome messages, and customized room amenities based
on guest preferences. You can embark on a rewarding career through
a hospitality management course to equip you with the skills and
knowledge needed to excel in this dynamic industry.

3. Consulting: A management consulting firm offering tailored solutions,

dedicated client managers, and regular knowledge-sharing sessions to


add value to their clients' businesses.

4. Education: An online learning platform providing interactive courses,

personalized learning paths, and access to expert instructors to enhance


the learning experience.

These examples highlight the importance of delivering exceptional service


quality and catering to individual customer needs in various industries.

Importance of Service Marketing

Service marketing plays a vital role in today's highly competitive business


landscape. Here are some key reasons why service marketing is important:

1. Differentiation: Organizations must differentiate themselves from their

competitors in a crowded marketplace. Service marketing provides an


avenue to showcase unique service offerings, exceptional customer
experiences, and customized solutions, setting businesses apart from the
competition.

2. Customer Loyalty: By delivering excellent service experiences,


organizations can foster customer loyalty and build long-lasting
relationships. Satisfied customers are more likely to become repeat
customers and brand advocates, leading to increased referrals and
positive word-of-mouth.

3. Revenue Generation: Effective service marketing can drive revenue

growth by attracting new customers and encouraging up selling or cross-


selling opportunities. When customers perceive value in the services
provided, they are willing to pay a premium, leading to increased
profitability.

4. Reputation and Trust: A strong service marketing strategy helps build a

positive reputation and instil trust in consumers. When customers have


confidence in an organization's ability to deliver on its promises, they are
likelier to choose that service provider.

characteristics of Services

  Lack of ownership
  Intangibility
  Inseparability
  Variability
  Perishability
  User participation
  Fluctuating demand
  Pricing of services
  Direct channel
  Irrelevance of certain marketing functions
  Skill orientation

Lack of Ownership
Lack of ownership may be one of the most obvious ones of the characteristics of
service. It refers to the fact that you cannot own and store a service like you can
a product. This characteristic is strongly linked to several other characteristics of
services, such as intangibility, perishability, inseparability.

Intangibility
When thinking about the characteristics of services, intangibility may come to
your mind first. Service intangibility means that services cannot be seen, tasted,
felt, heard or smelled before they are bought. You cannot try them out. For
instance, airline passengers have nothing but a ticket and a promise that they will
arrive at a certain time at a certain destination. But there is nothing that can be
touched.

Inseparability
Characteristics of services include inseparability, which means that services are
produced and consumed at the same time. This also entails that services cannot
be separated from their providers. Contrary to services, physical goods are
produced, then stored, later sold, and even later consumed. Services are first
sold, then produced and consumed at exactly the same time. A product can, after
production, be taken away from the producer. However, a service is produced at
or near the point of purchase. For instance, when visiting a restaurant, you order
your meal, the waiting and delivery of the meal, theservice provided by the
waiter/ress etc. All these parts, including the providers,are part of the service and
therefore inseparable. In services marketing, a service provider is the product.
Variability
Variability does also belong to the important characteristics of services. It refers
to the fact that the quality of services can vary greatly, depending on who
provides them and when, where and how. Because of the labour-intensive nature
of services, there is a great deal of difference in the quality of service provided
by various providers, or even by the same providers at different times.

Perishability
Perishability means that services cannot be stored for later sale or use. In other
words, services cannot be inventoried. This is one of the most significant
characteristics of services, since it may have a major impact on financial results.
Doctors or dentists often charge patients for missed appointments because the
service value has foregone. The value existed only at that particular point and
disappeared when the patient did not come. When demand is steady, the
perishability of services is not a problem. However, in case of fluctuating
demand, service firms can have difficult problems. For this reason, transport
companies own much more equipment than they would if demand were even
throughout the day: the demand during rush-hours needs to be served at that
specific time, it cannot be served later or earlier. Consequently, service
companies use various techniques for creating a better match between demand
and supply: Demand shifting.

User participation
Finally, the characteristics of services include user participation. Indeed, users
participate in every service production. Even when the user is not required to be
at a location where the service is performed, users participate in every service
production. A service cannot be separated from its provider, but neither can it be
separated from its user.

Fluctuating demand
Fluctuating demand is the other feature of services. The demand for many
services fluctuates according the season. For example, demand for tourism is
highly seasonal in nature. There is a greater demand for hill stations during
summer. Similarly, there is a greater demand for tourist vehicles during summer
holidays, New Year, weekend etc.

Pricing of services
Pricing of services is influenced by perishability, fluctuation in demand and
inseparability. Quality of services cannot be standardized, price determination
for services cannot be standardized, price determination for services is
depending on demand and competition. Therefore variable pricing method is
adopted. For instance, room rent in tourist destination depends upon the demand
3pattern. Many times, during off-season. Hotel owners offer seasonal discount
also. The same is true in case of tour operators who run fleet of vehicles.

Direct channel
Generally, the services are delivered directly to consumers. Consumers directly
approach service providers to take the services. For example a customer who
needs a service from the bank, post office, hotel or a doctor visit the concerned
service provider and consume the service.

Irrelevance of certain marketing functions


Many marketing functions are irrelevant in service marketing. These include
transportation, grading, storage, inventory control, packing etc. These services
are needed for goods marketing are not necessary for services marketing.
Skill orientation
In case of services, it is the skill of service provider which determine the fate of
business. The intellectual capital of the service provider plays a vital role in
marketing of services. The quality of service hospitality, consumer satisfaction
will determine the profitability of business.

Classification of Services

Services are classified as people-based services or equipment-based services.


And within those classifications, there are subcategories

People-Based Services
People-based services are when people primarily deliver the service, rather than
equipment or machinery . It’s the individuals delivering the service, and the
knowledge and skills that they possess, that add value and allow the service to be
performed. People-based services can be broken down further into these
subcategories:

 services provided by unskilled labor: parking lot attendants, babysitters,


and janitors
 services provided by skilled labor: plumbers, caterers, and hairstylists
 services provided by professionals: doctors, attorneys, college professors,
and accountants

Equipment-Based Services

Equipment-based service firms utilize equipment, machinery, and other forms


of technology to perform service tasks . Similar to people-based services,
equipment-based services can be further broken down into subcategories:

 automated services: car washes and parking meters


 equipment-based services operated by relatively unskilled operators: dry-
cleaning equipment
 equipment-based services operated by skilled operators: X-ray machines
and ultrasound equipment

There is another way to categorize services, according to well-known author


and professor Christopher Lovelock (1940–2008). He proposed four broad
categories of services:

 people processing: services toward people’s bodies


 possession processing: services toward possessions
 mental stimulus processing: services toward people’s mind
 information processing: services toward intangible assets4

In the categories are defined on a two-dimensional matrix, wherein one of the


dimensions is the direct recipient of the service and the other is the nature of the
service act.

Difference Between Product and Service Marketing

Sr. Product Service Marketing


No

1 Focuses on marketing tangible, Focuses on marketing intangible,


physical products non-physical services

2 Involves promoting and selling a Involves promoting and selling a


specific product to consumers specific service to consumers

3 Emphasizes the features, functionality, Emphasizes the value, quality,


and benefits of the product and customer experience of the
service
4 Tangible products can be seen, Intangible services are
touched, and evaluated before experienced and evaluated
purchase during delivery

5 Often involves packaging, branding, Often involves customer


and physical product attributes interactions, service delivery,
and customization

6 Pricing strategies are based on Pricing strategies may focus on


production costs, market demand, and the value provided, expertise, or
competition time-based charges

7 Typically has a one-time transactional Often involves ongoing


nature relationships and recurring
service engagements

8 Product marketing may involve Service marketing may involve


distribution channels and supply chain optimizing service delivery
management processes and customer
touchpoints

9 Product marketing may include Service marketing may focus on


warranties, guarantees, or product service guarantees, customer
return policies satisfaction, or service level
agreements

10 Products can be standardized and Services are often customized or


mass-produced for broader markets personalized based on individual
customer needs

11 Physical products can be stored, Services are typically provided


inventoried, and shipped to customers on-demand or scheduled for
specific times
12 Product marketing may involve Service marketing may involve
physical displays, demonstrations, or service demonstrations,
product trials testimonials, or case studies

13 Consumer decision-making for Consumer decision-making for


products may be based on product services may be based on
features, price, or brand reputation reputation, customer reviews, or
service quality

14 Product marketing may involve the Service marketing may involve


management of product life cycles and continuous service improvement
new product launches and innovation

15 Packaging and physical presentation The customer experience and


play a significant role in product service delivery process play a
marketing significant role in service
marketing

16 Products can be mass-marketed to a Services may be targeted to


broad consumer base specific customer segments or
industries

17 Products can be easily compared and Services may be more subjective


benchmarked against competitors and difficult to compare directly

18 Product marketing may involve point- Service marketing may involve


of-sale displays and retail service settings, customer service
environments interactions, or online service
platforms

19 Product marketing may focus on Service marketing may focus on


product performance and durability service reliability,
responsiveness, and
customization
20 After-sales support may include After-service support may
product warranties, repairs, or include customer support,
customer service maintenance, or service
guarantees

Service Marketing Mix – 7 P’s of marketing


The service marketing mix is also known as an extended marketing mix and is
an integral part of a service blueprint design. The service marketing mix
consists of 7 P’s as compared to the 4 P’s of a product marketing mix. Simply
said, the service marketing mix assumes the service as a product itself. However
it adds 3 more P’s which are
required for optimum service delivery. The product marketing mix consists of
the 4 P’s which are Product, Pricing, Promotions and Placement. These are
discussed in my article on product marketing mix – the 4 P’s.The extended
service marketing mix places 3 further P’s which include People, Process and
Physical evidence. All of these factors are necessary for optimum service
delivery. Let us discuss the same in further detail.
1) Product
The product in service marketing mix is intangible in nature. Like
physical products such as a soap or a detergent, service products cannot be
measured. Tourism industry or the education industry can be an excellent
example. At the same time service products are heterogeneous, perishable and
cannot be owned. The service product thus has to be designed with care.
Generally service blue printing is done to define the service product. For
example – a restaurant blue print will be prepared before establishing a
restaurant business. This service blue print defines exactly how the product (in
this case the restaurant) is going to be.
2) Place
Place in case of services determine where is the service product going to be
located. The best place to open up a petrol pump is on the highway or in the city.
A place where there is minimum traffic is a wrong location to start a petrol
pump. Similarly a software company will be better placed in a business hub with
a lot of companies nearby rather than being placed in a town or rural area. Read
more about the role of business locations or Place element.
3) Promotion
Promotions have become a critical factor in the service marketing mix. Services
are easy to be duplicated and hence it is generally the brand which sets a service
apart from its counterpart. You will find a lot of banks and telecom companies
promoting themselves rigorously. Why is that? It is because competition in this
service sector is generally high and
promotions is necessary to survive. Thus banks, IT companies, and dotcoms
place themselves above the rest by advertising or promotions.
4) Pricing
Pricing in case of services is rather more difficult than in case of products. If you
were a restaurant owner, you can price people only for the food you are serving.
But then who will pay for the nice ambiance you have built up for your
customers? Who will pay for the band you have for music? Thus these elements
have to be taken into consideration while costing. Generally service pricing
involves taking into consideration labour, material cost and overhead costs. By
adding a profit mark-up you get your final service pricing. You can also read
about pricing strategies.
55) People
People is one of the elements of service marketing mix. People define a service.
If you have an IT company, your software engineers define you. If you have a
restaurant, your chef and service staff defines you. If you are into banking,
employees in your branch and their behaviour towards customers defines you. In
case of service marketing, people can make or break an organization. Thus many
companies nowadays are involved into specially getting their staff trained in
interpersonal skills and customer service with a focus towards customer
satisfaction. In fact many companies have to undergo accreditation to show that
their staff is better
than the rest.
6) Process
Service process is the way in which a service is delivered to the end customer.
Let’s take the example of two very good companies – McDonalds and FedEx.
Both the companies thrive on their quick service and the reason they can do that
is their confidence on their processes.
On top of it, the demand of these services is such that they have to deliver
optimally without a loss in quality. Thus the process of a service company in
delivering its product is of utmost importance. It is also a critical component in
the service blueprint, wherein before establishing the service, the company
defines exactly what should be the process
of the service product reaching the end customer.
7) Physical Evidence
The last element in the service marketing mix is a very important element. As
said before, services are intangible in nature. However, to create a better
customer experience tangible elements are also delivered with the service. Take
an example of a restaurant which has only chairs and tables and good food, or a
restaurant which has ambient lighting, nice music along with good seating
arrangement and this also serves good food. Which one will you prefer? The one
with the nice ambience. That’s physical evidence. Several times, physical
evidence is used as a differentiator in service marketing. Imagine a private
hospital and a government hospital. A private hospital will have plush offices
and well-dressed staff. Same cannot be said for a government hospital. Thus
physical evidence acts as a differentiator.
Service Product Level

A product can be either tangible or intangible in nature. Intangible


products can be in the form of services, people, places, or ideas. Customers
seek various benefits when they purchase a tangible or intangible product.
Customers have varied needs attached to a single product. Typically, there
are four levels of a product, namely, core level, actual level, augmented
level, and potential level. Therefore, service providers should clearly
understand and satisfy their customers’ needs first at the core level by
offering them the core benefits, and then at the actual level by attaching
tangible aspects to the intangible services. Later, service providers should
satisfy the augmented needs of the customer by providing them superior
service finally, they should try to satisfy the potential needs of the customers
by including features or benefits that can add value to the customers.
The Core Product

The core benefit of any product is to satisfy the basic needs of a


customer. Therefore, marketers should first decide on the core
benefits the company has to offer its customers. For example, when a
customer hires the services of a tax consultant, he expects the
consultant to calculate the tax to be paid on his income. This is the
core service offered by the consultant. However, due to heavy
competition and very little to differentiate between different players,
marketers have designed products that offer multiple and customized
benefits in order to attract and retain customers. For example, the tax
consultant might offer to file the tax returns on behalf of the customer
and spare him the trouble of waiting in long queues. He may even
offer suggestions on various investment tools to increase the
customer’s tax savings. Similarly, many management consultants
have started to look after company incorporations (bringing a
company into existence according to Companies Act,1956) in
addition to consulting and auditing services.

The Actual Product

The tangible aspects attached to the service, along with the


service, constitute the actual product. This facilitates the delivery of
core benefits to the customers. Therefore, marketers should develop
the actual product after the core benefit has been decided. The
characteristics of actual products are features, design, quality level,
packaging, and brand name. For example, when a company hires the
services of a reputed consultant like McKinsey, the quality, some
special features and design/packaging and the brand name
accompany, the core service of consultation.

The Augmented Product

The intangible aspects that support a service constitute the


augmented product along with the actual product. These are
developed around the actual and core products to satisfy the customer.
Warranty, installation support, delivery, customer service, etc., are
some examples of augmented product characteristics. Marketers have
an opportunity to differentiate their services with the help of
augmented product characteristics. For example, when a customer
hires the services of a caterer for his wedding, the core service is
providing food for the guests. If the caterer takes care of decorating
the dining hall, inviting the guests and serving them well; it is an
augmented product.

The Potential Product

The features or benefits that can be added and which would be of


value to the customers contribute to the potential product This scope
for adding more benefits or features, provides an opportunity for
marketers to redefine their products by extending the present offerings
and thus attracting new customers. For example, when a woman goes
to a parlour for a change in her hairstyle, she has to choose from the
hairstyles shown in the posters out there. However, the hairstyle she
chooses may look good on the model in the photograph, but not on
her. She might want to know how she would look in a particular
hairstyle. The parlour can enable customers to choose their hairstyle
with the help of new technology. They can load software that helps
them to superimpose various hairstyles on the image of a customer
and let the customer choose the one she feels suits her the best. In
fact, there are some salons which offer this feature.
Meaning of Service Sector

The service industry forms the backbone of the social and economic
development of a region. It has emerged as the largest and fastest-
growing sector in the world economy, making higher contributions to
global output and employment. Its growth rate has been higher than that
of the manufacturing and agriculture sectors. It is the largest and most
dynamic part of the Indian economy both in terms of employment
potential and contribution to national income. It covers a wide range of
activities, such as transportation, trading, financial, real
estate, communication and business services, as well as community,
social and personal services. The service sector is an essential aspect of
the economy that produces intangible goods. It consists of services such
as messenger services, transportation and warehousing. Jobs in this sector
produce services rather than goods with examples being teaching and
nursing.

Services hold immense potential to accelerate the growth of an economy


and enhance the overall welfare of individuals. They offer numerous
business opportunities to the investors. They can generate substantial
economic employment opportunities and increase per capita income.
Without them, the Indian economy would not have acquired a solid and
dominating place on the world platform.

Evolution of the Service Sector

The service sector has evolved through different stages viz., pre-industrial
stage, industrial stage and post-industrial stage. While in the pre-
industrial stage, service was restricted only to households, the industrial
stage was characterised by the dominance of factories and manufacturing
processes. Hence the service sector has started being recognised in the
post-industrial stage encompassing rapid growth in transportation,
utilities, banking, real estate, insurance and higher education.

The various stages through which the service sector has evolved are as
follows:

1. Pre-Industrial Stage
2. Industrial Stage
3. Post-Industrial Society

1) Pre-Industrial Stage

The essence of life revolved around the concept of a game against nature.
Working with muscle power and tradition, the labour force had been
engaged in mining, agriculture, and fishing. Life was conditioned by the
elements, such as the weather, the quality of the soil, and the availability
of water The rhythm of life was shaped by nature, and the pace of work
varied with the seasons. Productivity has been low and bears little
evidence of technology. Social life revolves around the extended
household, and this combination of low productivity and a large
population results in high rates of underemployment (workers not fully
utilised). Many seek positions in the service industry, particularly those
pertaining to personal or household assistance. Pre-industrial societies are
agrarian and structured around routine, tradition and authority.

2) Industrial Stage
The timeframe spanning the 18th and 19th centuries holds significance as
the era of the Industrial Revolution on a global scale. There were many
inventions, technological breakthroughs, new transportation modes, and
scientific discoveries that took place during this period, especially in
European countries. The predominant activity in an industrial society
revolved around the production of goods. The focus of attention was on
achieving greater results with fewer resources. Energy and machines
multiply the output per labour hour and structure the nature of work.

The accomplishment of work takes place within the factory’s artificial


setting, with individuals supervising the operation of machines. In today’s
rapid-paced environment, life’s rhythm emulates that of machines,
constrained by strict working hours and the presence of time clocks. The
standard of living is determined by the quantity of goods. However, it is
important to note that the complexity of coordinating the production and
distribution of goods results in the creation of large bureaucratic and
hierarchic organisations. The design of these organizations incorporates
designated roles for their members, and their operations typically adopt
an impersonal approach, regarding individuals as commodities.

3) Post-Industrial Society

In an industrial society, the standard of living finds its primary


determination in the abundance of goods, whereas, in a post-industrial
society, the focus shifts to the quality of life, assessed through services
like health, education, and recreation. The central figure is the
professional individual because information is a critical resource rather
than energy or physical strength.
Post the 19th century, an era characterized by the emergence of
substantial industries, the anticipation of income growth led individuals
to adopt more “materialistic” preferences, prompting an upsurge in
demands for services within the health, education, and entertainment
sectors.

Growth of the Service Sector in India

Over the years, the service sector has witnessed a remarkable evolution in
the type and quality of services offered to customers. Service providers
have grown to realise that change is the only constant thing and if they do
not evolve with the market, they risk losing market share to their
competitors. Increasing competition in the service sector in India has
made it necessary for service firms to grow from purely selling services
to building lasting relationships with their customers.

To gain insight into the growth of India’s service sector and its
implications for the economy, analyze the following points:

1. Services GDP
2. FDI in the Services Sector
3. State-Wise Comparison of Services
4. India’s Services Trade
5. Services Employment in India
6. Performance of Some Major Services
1) Services GDP

The survey reveals that the share of services in India’s GDP at factor cost
(at current prices) increased from 33.5% in 1950-51 to 55.1% in 2010-11
and to 56.3% in 2011-12 as per Advance Estimates (AE). Taking
construction into account, the Service Sector’s contribution expanded to
63.3% during 2010-11 and saw a subsequent rise to 64.4% in 2011-12.
Projecting the employment figures, the survey says that while agriculture
continues to be the primary employment-providing sector, the service
sector (including constriction) is in second place.

According to the Employment and Unemployment Situation in India


2009-10 report by the National Sample Survey Organisation (NSSO),
which analyzes usually working individuals in principal and subsidiary
statuses, the employment distribution for every 1,000 people in rural
India includes 679 in the agriculture sector, 241 in the service sector
(including construction), and 80 in the industrial sector. In urban India,
the corresponding figures are 75 in the agriculture sector, 683 in the
service sector (including construction), and 242 in the industrial sector.

2) FDI in the Services Sector

FDI inflows into the service sector and the involvement of transnational
corporations play a pivotal role in driving the growth of this sector. While
the ambiguity in classifying various activities within the services sector
continues. In 2011-12, FDI inflows to the services sector (top five sectors
including construction) grew robustly at 57.62 per cent to U.S. $12.14
billion compared to the growth of overall FDI inflows at 33.6 per cent.
However, in 2012-13 (April – November), overall FDI inflows fell by
433 per cent to U.S., $15.85 billion from US. $27.93 billion in the
corresponding period of the previous year.

Following this trend, FDI inflows in the top five services also fell by 9.7
per cent to the US. $8.19 billion. Among them, while FDI inflows to the
top four service sectors fell in the range of 14 to 97 per cent, FDI inflows
to the hotel and tourism sector increased by a very high 328 per cent over
the corresponding period in the last year.

3) State-Wise Comparison of Services

A comparison of the share of services in the Gross State Domestic


Product (GSDP) of different States and Union Territories (UTS) in 2011-
12 shows that the service sector is the dominant sector in most states of
India. States and UTs such as Chandigarh, Kerala, Delhi, Mizoram, Tamil
Nadu, West Bengal, Maharashtra, Nagaland, and Karnataka have higher
than all-India shares. Chandigarh ranks first on the list, with a share of 85
per cent followed by Delhi with 81.8 per cent. Other than Arunachal
Pradesh (33.8 percent), Sikkim (37.0 percent), and Chhattisgarh (36.7
percent), the share of services in the GSDP in all other States is more than
40 percent. In 2011-12, in tune with the general moderation in overall
service growth, service growth rates in many States also moderated.

Certain states have consistently upheld impressive growth rates, led by


Himachal Pradesh at a remarkable 17.3 per cent, closely followed by
Bihar at 16.6 per cent. Among UTs with a high service share in GSDP,
Delhi with 11.5 per cent. growth tops the list. The services revolution in
India is becoming more widespread, with even the hitherto backward
states piggy-backing on the good performance of this sector, the initial
momentum seems to have slowed down for some North-Eastern States
like Mizoram, Arunachal Pradesh, and Nagaland after the advantage of
base effect is over.

4) India’s Services Trade


India’s share of service exports in the world exports of services, which
increased from 0.6 per cent in 1990 to 1.0 in 2000 and further to 3.3 per
cent in 2011, has been increasing faster than the share of merchandise
exports in the world exports. The growth rates of India’s service
exports and the world show two distinct phases. The first phase lasted
until 1996 when the growth rates of the two showed a scissor-like
movement, and the second phase after 1996, when the growth of India’s
service exports was more than that of the world in almost all the years
excluding 2009. In this second phase, the former was much above the
latter in upswings but almost converged with the latter during
downswing.

The level of economic openness reflected by total trade including services


as a percentage of GDP shows a higher degree of openness at 55.0 per
cent in 2011-12 compared to 38.1 per cent in 2004-05. In 2011-12, the
openness indicator, solely considering merchandise trade, stood at 43.2
per cent, a notable increase from the 28.3 per cent recorded in 2004-05.

5) Services Employment in India

The distribution of employment across sectors has undergone significant


changes in the past two decades with the share of agriculture falling from
64.75 per cent in 1993-94 to 53.2 per cent in 2009-10 and of industries
(excluding construction) has also decreased from 12.43 per cent to 11.9
per cent. The shares of the services and construction sectors in
employment experienced a notable increase during the same period. the
services sector witnessed a rise from 19.70 per cent to 25.30 per cent and
3.12 per cent to 9.60 per cent respectively.
According to the National Sample Survey Office’s (NSSO) report on the
Employment and Unemployment Situation in India 2009-10, the data
based on usually working individuals in principal and subsidiary statuses
reveals that for every 1,000 people employed in rural India, 679
individuals find employment in the agriculture sector, 241 in the services
sector (including construction), and 80 in the industrial sector.

The agriculture sector in urban India employs 75 individuals, while the


service sector (including construction) provides employment for 683
people, and the industrial sector employs 242 individuals. Construction;
trade, hotels, and restaurants; and public administration, education, and
community services are the three major employment-providing service
sectors. Research indicates that the proportion of tertiary employment
share has strong upward slopes in all the income quintiles both in rural
and urban areas with higher income quintiles having higher shares in each
successive NSSO round. Thus tertiary employment growth is steadily
moving from being an absorber of low-income labour to the provider of
high-income jobs.

6) Performance of Some Major Services

The performance of the different services based on the other indicators


shows that sectors like tourism, telecom, and railways have done well in
2011-12. Shipping and ports show poor performance reflecting the effects
of the global economic slowdown. The performance and outlook for the
different services sectors based on limited firm-level data, estimates and
forecasts, show a mixed picture for the current year, though there are
some grounds for optimism in the coming year.
This section takes an in-depth look at India’s vital commercial services,
offering comprehensive insights into their role within the economy based
on GDP, employment rates, export performance, and future possibilities.
Avoiding repetition is a priority, especially in services addressed in other
chapters like infrastructure, financial intermediation, and social sectors.
The important services for India include trade, tourism services, shipping
and port services, real estate services, business services including IT and
IT enabled Services (ITeS), Research and Development (R&D) services,
legal services, and accounting and audit services.

Nature of Financial Services


1. Customer Oriented: Financial services are customer-focused
services that are offered as per the requirements of customers.
Financial institutions properly study customer needs before
designing and offering such services. They are meant to fulfill the
specific needs of a customer which differs from person to person.
2. Intangibility: These services are intangible which makes their
marketing a challenging task for financial institutions. Such
institutions need to focus on building their brand image by
providing innovative and quality products to customers. Firms
enjoying better credibility in market are easily able to sell off their
products.
3. Inseparable: Financial services are produced and delivered at the
same time simultaneously. These services are inseparable and can’t
be stored in advance. Here production and supply function both
occurs at the same time.
4. Manages Fund: Financial services are specialized at managing
funds of people. These services enable peoples in allocating their
idle lying funds into useful means for earning revenues. Financial
services provide various means to people for converting their
savings into investment.
5. Financial Intermediation: These services does the work of
financial intermediation as it brings together the lender and
borrower. Financial services mobilize the funds of people who are
having enough of it and made it available to the one who are in
need of it.
6. Market Based: Financial services are market based which changes
as per the changing conditions. It is a dynamic activity which
varies as per the variations in socio-economic environment and
varying needs of customers.
7. Distributes Risk: Risk distribution is the key feature offered by
financial services. These services transfer the risk of an individual
not willing to take among different persons who all are willing to
bear it. Financial institutions diversify the risk and secure people
against damages by providing them various insurance policies.
Scope of Financial Services
Financial services consist of wide range of activities which are broadly
classified into 2: –

1. Traditional Activities.
2. Modern Activities.
Scope of Financial Services

Traditional Activities
Financial intermediaries have been offering a large range of services
traditionally

Related to capital and money market activities. These services are


classified into 2 groups: – Fund based activities and Non-fund based
activities.
Fund Based Activities.
Fund based activities comprises of activities which are concerned with
acquiring funds and assets for clients. Different services covered under
fund based activities are: Primary and secondary market activities,
dealing in money market instruments, foreign exchange market activities
and involving in hire purchase, venture capital, equipment leasing etc.

Non-fund based Activities.


These services are provided by financial intermediaries on non-fund basis
and are called fees-based services. Non-fund bases activities are
specialized services offered by financial institutions to customers in
exchange for fees, commission, dividend and brokerage. This comprises
of services such as Portfolio management, issue management, stock
broking, merchant banking, credit rating, debt and capital reconstructing,
bank guarantee etc.
Modern Activities
Financial intermediaries beside the traditional services offers a wide
range of financial services at present. These activities are mostly in the
category of non-fund based activities.

Few of the modern activities are listed below: –


 Merger and acquisition planning and helping with their smooth
carry out.
 Providing guidance in capital reconstructing to corporate
customers.
 Assisting in rehabilitation and reconstruction of sick companies.
 Portfolio management of large public sector corporations.
 Providing recommendations in management style and structure for
attaining better results.
 Acting as trustees to the debentures-holders.
 Providing project advisory services ranging from project
preparation to capital raising.

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