What are services? Definition and meaning

Services are the non-physical, intangible parts of our economy, as opposed to goods, which we can touch or handle.

Services, such as banking, education, medical treatment, and transportation make up the majority of the economies of the rich nations. They also represent most of the emerging nations’ economies.

During the twentieth century, manufacturing and agriculture shrank as a share of economic activity. The shift towards a service-based economy is a hallmark of advanced economic development, often accompanied by a corresponding decline in the relative importance of agriculture and manufacturing.

Today, over two-thirds of GDP and four-fifths of employment in the **OECD countries are in the services sector. GDP stands for Gross Domestic Product, and OECD stands for Organization for Economic Co-operation and Development.

** The OECD is a unique forum consisting of 35 democracies with market economies. It aims to promote economic growth, prosperity, and sustainable development.

Sometimes, it is difficult to differentiate between a service and a good. For example, in healthcare what is the administration of a drug combined with the diagnosis of a physical condition or disease? In fact, it comprises both goods – medical and diagnostic devices – and services – the expertise of medical professionals.

We can’t store services

When a company provides a service, and the customer has paid for it, there is no transfer of ownership. We cannot transport or store a service.

They only exist while the provider is supplying it and the customer is consuming it. For example, a haircut is a service; you cannot transport or store a haircut.

In fact, the haircut only exists while somebody is cutting your hair.

Services are intangible by nature; there is no time gap between the provision and consumption of a service. You can neither store nor transfer them. Goods are tangible; there is a time gap between their production and consumption. Unlike services, we can store goods. We can also transport them.

You cannot touch it

When you pay for a service, you receive something intangible. In other words, you do not get anything solid, i.e., you cannot touch it

The buyer of a service gets something he or she needs. However, the customer does not own any physical, solid, or fixed property resulting from the transaction.

The usefulness or benefits of a particular service are reflected in the purchaser’s willingness to pay for it. Using skill, ingenuity, experience, and resources, service providers benefit consumers.

According to BusinessDictionary.com, services are:

“Intangible products such as accounting, banking, cleaning, consultancy, education, insurance, expertise, medical treatment, or transportation.”

Services and Goods continuum
Most services require supporting goods in order to be useful. The same applies to goods, i.e., most of them need supporting services to be useful. In a book titled – ‘Service Design and Delivery‘ – Glenn Parry, Linda B. Newnes, and Xiaoxi Huang wrote: “They (goods and services) will sit at a point along this spectrum. It may be more appropriate to take a goods-services continuum viewpoint rather than defining goods and services explicitly.” (Image: adapted from Wikipedia)

Goods vs. services

Every economy in the world is made up of a combination of goods and services.

  • Goods

Goods are physical, tangible things we produce. We can touch or handle them. People buy or sell and eventually consume them. We can store and transport goods.

If you look around your house, you will see dozens of examples of goods, including your cooker, microwave, washing machine, and dishwasher. Your TVs, computers, smartphones, furniture, and water taps are also goods.

Anything you can touch, which we manufacture, extract from mines, or produce from farming are goods.

If you open your fridge – which is a good – it is full of goods inside that you bought in the supermarket. Somebody made them in a factory or workshop, fished them in a river, lake or sea.

Miners extracted minerals from a mine, and we used them to make goods. Additionally, farmers grew or produced many of the goods in your fridge.

  • Services

These are activities that other individuals, companies, or government departments do for you.

When you book a hotel room, flight, or vacation, the booking agent is providing a service. You cannot touch or handle that booking, i.e., the booking is an intangible thing, it is abstract. You cannot store or transport that booking.

Each public service that the government provides is for its citizens. Examples include the police force, armed forces, ambulances, paramedics, and the fire brigade. Also, healthcare (in most of the advanced economies) is a service, as are public broadcasting, urban planning, and waste management.

Services as percentage of GDP
According to Macro Economy Meter: “The world’s average Services % of GDP is equal to 63.3 %. Northern Mariana Islands’ Services % of GDP is 2 times higher than the average Services % of GDP of the world. The countries with the highest Services % of GDP are Northern Mariana Islands, Bermuda, Macao SAR, China, Hong Kong SAR, China, The Bahamas with a(n) Services % of GDP of (95), (94), (94), (93), (91) % respectively.” (Image: adapted from mecometer.com)

The five I’s of services

Economists often refer to the features of each service as the 5 I’s, which include:

  • Intangibility: you cannot touch or handle them. Neither can you transport, stock, manufacture, mine, or farm them.
  • Inventory (Perishability): you cannot store them for future use. Once the provider delivers the service, it irreversibly vanishes.
  • Inseparability: the provider must deliver the service at the time of consumption. Unlike a good, a service can only be delivered and consumed when the provider is present.

I cannot, for example, have a haircut if the person who cuts my hair is not present.

  • Inconsistency: as in ‘variability’. Each delivery of a particular service is never exactly the same as the previous or future ones. Each one is unique, even if the same customer requests the same service.

The haircut I had today may be similar to the one I had two months ago, but it is not 100% identical.

Goods, especially those that come off a production line, are identical. In fact, the first Snickers Bar produced in the factory on Monday morning is identical to the second produced on the same day. Furthermore, they are both identical to all the others the factory produces on Tuesday, Wednesday, etc.

  • Involvement: both the consumer and provider of a service participate in its provision. For example, during a haircut, there are two participants – the customer and the hairdresser. Unless both are present, the service is not possible.

As digitalization advances, many services are being transformed, allowing for remote delivery and increased accessibility, which fundamentally changes the traditional dynamics of service consumption.

Service providers often tailor their offerings to meet the specific preferences or requirements of their customers, which is a key competitive advantage in service industries.

“Service” is a derivative of “serve”

The word “serve” has many derivatives, one of which is “services.” Let’s have a look at these derivatives, their meanings, and how we can use them in a sentence:

  • Serve (Verb)

To perform duties or services for another person or an organization.
Example: “She will serve on the jury for the upcoming trial.”

  • Service (Noun)

The action of helping or doing work for someone.
Example: “The car requires a full service to ensure it remains in good condition.”

  • Services (Noun, plural)

Economic activities that are intangible and non-storable, performed by one party for another.
Example: “The economy has seen a significant increase in services such as information technology and consulting.”

  • Servant (Noun)

A person who performs duties for others, especially a person employed in a house on domestic duties or as a personal attendant.
Example: “The wealthy family had several servants to maintain their large estate.”

  • Servitude (Noun)

The state of being a slave or completely subject to someone more powerful.
Example: “He was sentenced to a life of servitude after being captured in battle.”

  • Server (Noun)

A person or thing that provides a service or commodity, in particular.
Example: “The server at the restaurant was very attentive to our table.”

  • Serviceable (Adjective)

Functional and durable; capable of being serviced to maintain in good condition.
Example: “The old truck wasn’t pretty, but it was still serviceable and got the job done.”

  • Serviceman (Noun)

A man who is a member of the armed forces.
Example: “The serviceman returned home after a year stationed abroad.”

  • Serviceability (Noun)

The quality of being able to provide good service.
Example: “The serviceability of this software makes it a favorite among its users.”

  • Servicewoman (Noun)

A woman who is a member of the armed forces.
Example: “The servicewoman was honored for her outstanding bravery.”

  • Serviceably (Adverb)

In a way that is functional and useful.
Example: “The boots were worn but still serviceably intact for hiking.”

  • Servile (Adjective)

Having or showing an excessive willingness to serve or please others.
Example: “His servile attitude made him popular with his superiors but not with his peers.”

  • Serviceman’s (Possessive Noun)

Belonging to a serviceman.
Example: “The serviceman’s uniform was crisp and well-kept.”

  • Serviced (Verb – Past Tense)

Maintained or kept in good condition.
Example: “She serviced her bicycle before the race to ensure it was in peak condition.”

  • Servicing (Verb – Gerund/Participle)

The action of maintaining or repairing a vehicle or machine.
Example: “The company is responsible for servicing the office’s heating system.”

  • Servilely (Adverb)

In a manner that shows readiness to serve others.
Example: “He bowed servilely before the king.”

  • Disserve (Verb)

To fail to serve; to do a disservice.
Example: “Spreading rumors about coworkers does a disserve to the entire office atmosphere.”

  • Underserved (Adjective)

Provided with inadequate service.
Example: “The underserved community finally received attention from local health services.”

  • Reserve (Verb)

To retain or hold back a service or commodity for future use.
Example: “She reserved a table at the restaurant for her parents’ anniversary dinner.”

  • Preserve (Verb)

To maintain (something) in its original or existing state.
Example: “The museum works hard to preserve artifacts from ancient civilizations.”

  • Deserve (Verb)

To do something or show qualities worthy of (a reaction which rewards or punishes as appropriate).
Example: “After all of his hard work, he felt he deserved the promotion.”

Two Videos

These two YouTube videos come from our sister channel, Marketing Business Network or MBN. They explain what the terms “Services” and “Goods” mean using easy-to-understand language and examples:

  • What are Services?

  • What are Goods?