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1.2. What Are Services?

The material gains of a society are achieved by adding value to natural resources. In advanced societies, there are many organizations that extract raw materials, add value through processing them, and transform intermediate materials and components into finished products. There are, however, other organizations that facilitate the production and distribution of goods, and organizations that add value to lives through a variety of intangibles they provide. Outputs of this latter group are called services.

Services can be defined as economic activities that produce time, place, form, or psychological utilities. Services are acts, deeds, or performances; they are intangible. A maid service saves the consumer time from doing household chores. Department stores and grocery stores provide many commodities for sale in one convenient place. A database service puts together information in a form more usable for the manager. A “night out” at a restaurant or movie provides psychological refreshment in the middle of a busy workweek.

Services also can be defined in contrast to goods. A good is a tangible object that can be created and sold or used later. A service is intangible and perishable. It is created and consumed simultaneously (or nearly simultaneously). Although these definitions may seem straightforward, the distinction between goods and services is not always clear-cut. For example, when we purchase a car, are we purchasing a good or the service of transportation? A television set is a manufactured good, but what use is it without the service of television broadcasting? When we go to a fast-food restaurant, are we buying the service of having our food prepared for us or are we buying goods that happen to be ready-to-eat food items?

In reality, almost all purchases of goods are accompanied by facilitating services, and almost every service purchase is accompanied by facilitating goods. Thus the key to understanding the difference between goods and services lies in the realization that these items are not completely distinct, but rather are two poles on a continuum. Exhibit 1-2 shows such a continuum.


Exhibit 1-2. A Comparison of Various Goods and Services

Source: Based on Earl W. Sasser, Jr., R.P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston, Allyn and Bacon, 1978), p.11.

Referring to Exhibit 1-2, one would probably classify the first three items as “goods” because of their high-material content. There is little service in purchasing self-service gasoline; an automobile is mostly a physical item; and although its lease does require some service, a leased car is a good. Take-out food can be considered as consisting of half good and half service. One would probably classify the remaining items as “services” because of their high-service content; although, some physical materials may be received. For instance, restaurants not only give the customer a meal of physical food and drink, but also a place to eat it, chefs to prepare it, waiters to serve it, and an atmosphere in which to dine. Tax preparation is almost pure service, with little material goods (most tax returns are now filed electronically) received by the consumer.

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