Module 1:

The Role of Services in an

Economy

• Understanding Services Phenomenon

• Growth of Service Sector
• Role of services in the Economy
• The concept of Services
• Characteristics of services
• Classification of services
The service sector

 The services sector has been growing globally at a

rate of 8% and above per annum in recent years
 More than half of our GDP is accounted for from
the services sector in most of the countries
 This sector dominates with the best jobs, best
talent and best incomes
 Share of services in GDP in developing countries
ranges around 50% - 60%, and in developed
countries around 80% - 90%
 Services could meet

Personal needs – haircuts, tuition, massage

parlors, Insurance, etc…

Business needs – courier services, office

cleaning services, delivering fresh flowers,
accounting service, travels, BPO,
Construction, Insurance, etc..
Discuss service as B2B and B2C
Percent Service Employment for
Selected Industrialized Nations

Country 1980 1987 1993 1999

United States 67.1 71.0 74.3 80.4
Canada 67.2 70.8 74.8 73.9
Japan 54.5 58.8 59.9 72.4
France 56.9 63.6 66.4 70.8
Israel 63.3 66.0 68.0 70.7
Italy 48.7 57.7 60.2 61.1
China 13.1 17.8 21.2 26.4

Access IBEF.org for current data

(India Brand Equity Foundation)
Contribution of Services Industries to
Global GDP
Estimated Size of Service Sector in
Selected Countries

Current data:
India- 65%
USA- 90%
Interrelated Role of Services
Difference between products and
services
Products Services
tangible intangible
homogeneous heterogeneous
Production and distribution are Production, distribution and
separated from consumption consumption are simultaneous processes
A physical item An activity or process
Core value processed in Core value produced in the buyer-seller
factory interaction
Customers do not participate Customers participate in production
in the production process Co-producer
Can be kept in stock Cannot be kept in stock
Transfer of ownership No transfer of ownership
Characteristics of services

Intangibility
Inseparability
Perishability
Variability
Characteristics of services

Intangibility : can not be

• Felt
• Touched
• Owned
• smelt
• can not return
Characteristics of services

Intangibility : Can not be owned

• Felt
• Touched
• Owned
• can not return
Characteristics of services

Inseparability:
– Customer and service provider can not be
separated.
– Both have to be present for service to take
place
– Involvement of both required. Extent can vary
Characteristics of services

Perishability :
– can not be stored
– Can not be inventoried
– Capacity is lost for ever
Challenge:
– Demand supply balancing
Characteristics of services

Variability :
– Quality differs every time you take a service
– Depends on customer
– Depends on service provider because of
People involvement
 Classification

They could be
Equipment/tool based - ATM
People based – varying skill levels –
Doctor consultation
Customer involvement – Hair cut
Object involvement – Laundry service
Information – Banking process
Classification of service

 People processing : People involvement high

( hair cut, Surgery, Parlor). Either at Service
factory or at home, Bus travel, etc..

 Possession processing (Cell phone repair,

Courier, Treatment to sick pet, Whole sale and
retail distribution, etc…)
Classification of service

 Mental stimulus processing : Services directed at

people’s mind- education, news, entertainment,
psychotherapy, Advertising, etc…
Services in this category can be stored to some
extent (CD recordings)

 Information processing : Services working on

client’s information - financial services, consulting,
Market research
Service Definitions
Service Definitions

 Services are Economic activities offered by one

party to another. Often time-based, performances
bring about desired results to recipients, objects,
or other assets for which purchasers have
responsibility