Services are first produced, then sold, then consumed.

The world economy nowadays is increasingly characterized as a service economy. This is primarily due to the increasing importance and share of the service sector in the economies of most developed and developing countries. In fact, the growth of the service sector has long been considered as indicative of a country’s economic progress.

Economic history tells us that all developing nations have invariably experienced a shift from agriculture to industry and then to the service sector as the main stay of the economy.

This shift has also brought about a change in the definition of goods and services themselves. No longer are goods considered separate from services. Rather, services now increasingly represent an integral part of the product and this interconnectedness of goods and services is represented on a goods-services continuum.

Definition and characteristics of Services

The American Marketing Association defines services as - “Activities, benefits and satisfactions which are offered for sale or are provided in connection with the sale of goods.”

The defining characteristics of a service are:

Intangibility: Services are intangible and do not have a physical existence. Hence services cannot be touched, held, tasted or smelt. This is most defining feature of a service and that which primarily differentiates it from a product. Also, it poses a unique challenge to those engaged in marketing a service as they need to attach tangible attributes to an otherwise intangible offering.

1. Heterogeneity/Variability: Given the very nature of services, each service offering is unique and cannot be exactly repeated even by the same service provider. While products can be mass produced and be homogenous the same is not true of services. eg: All burgers of a particular flavor at McDonalds are almost identical. However, the same is not true of the service rendered by the same counter staff consecutively to two customers.
2. Perishability: Services cannot be stored, saved, returned or resold once they have been used. Once rendered to a customer the service is completely consumed and cannot be delivered to another customer. eg: A customer dissatisfied with the services of a barber cannot return the service of the haircut that was rendered to him. At the most he may decide not to visit that particular barber in the future.
3. Inseparability/Simultaneity of production and consumption: This refers to the fact that services are generated and consumed within the same time frame. Eg: a haircut is delivered to and consumed by a customer simultaneously unlike, say, a takeaway burger which the customer may consume even after a few hours of purchase. Moreover, it is very difficult to separate a service from the service provider. Eg: the barber is necessarily a part of the service of a haircut that he is delivering to his customer.

Types of Services

1. Core Services: A service that is the primary purpose of the transaction. Eg: a haircut or the services of lawyer or teacher.
2. Supplementary Services: Services that are rendered as a corollary to the sale of a tangible product. Eg: Home delivery options offered by restaurants above a minimum bill value.

Difference between Goods and Services

Given below are the fundamental differences between physical goods and services:

GoodsServicesA physical commodityA process or activityTangibleIntangibleHomogenousHeterogeneousProduction and distribution are separation from their consumptionProduction, distribution and consumption are simultaneous processesCan be storedCannot be storedTransfer of ownership is possibleTransfer of ownership is not possible

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Goods are tangible company's products. They are objects, which means that they can be seen, felt, tasted and touched.

Goods are first produced, then sold and finally consumed. It means that they are separable of production, so the producer and seller may or may not be the same entity.

Goods do not require consumers to be present during the production process (i.e. the customer does not need to present in the process of shoes production). Goods are less heterogeneous than services because the quality standard among different producers may be similar.

Apart from the above, goods are not perishable because they can be saved and stored. It means that goods can be reclaimed.

Services are intangible products. They are performances, thus they cannot be seen, felt, tasted, or touched in the same manner in which goods can be sensed.

Services are inseparable of production and consumption. It means that services are first sold, then produced and consumed simultaneously. Inseparability also means that the producer and the seller are the same entity.

The main characteristic of service, is that it connects buyer with the production process, because the customer must be present during the production of many services ( i.e. haircuts, medical examination).

Services are highly heterogenous because its quality and essence various among producers. Apart from the above, services are perishable because they cannot be saved - for example hotel free rooms, not purchased airline seats cannot be reclaimed.

In summary:

Both goods and services are companies' products which aim at satisfying customers' needs. They differ in terms of intangibility, inseparability of production and consumption, heterogeneity, and perishability.

Are services consumed immediately?

What are the 4 characteristics of service?

Which services are produced and consumed at same time?

What does it mean services are perishable?