What is Service? Classification, Characteristics, Process, Systems View of Services, Yield Management

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What is Service?

Service defined as the act of helping or doing work for someone else, often for a fee or in exchange for something else. It’s involve providing assistance, support, or advice to others, and is often aimed at fulfilling a particular need or want of the person being served. Classic examples of service include waiting tables at a restaurant, providing medical care as a healthcare provider, or repairing a car as a mechanic.

Table of Content

Concept and Meaning of Services

At the end of World War II, most countries were left devastated and their economies were badly affected. To rebuild their economies and recover the losses, the countries strived for the revival of the manufacturing sector, which showed great potential at that time.

The manufactured products were easily sold in several countries across the world, which served the purpose of revival of economies. However, over the years, it was found that customers were expecting certain intangible aspects apart from products.

They wanted aftersales services for the products they had bought. An aftersales service is all about addressing the problems of customers that they may face while using a product. The concept of aftersales service led to the advent of the service industry.

The term ‘service’ refers to an intangible product such as an action, deed or effort which is offered to a customer at the point of sale. Just like products, services are also chargeable.

There is an operations aspect associated with services, which implies that services must be planned, organised, directed, implemented and controlled. Businesses that come under the service industry include tourism, education, medicine, architects, etc. Let us understand the concept of service with the help of an example.

Assume that youvisit a hotel where you check-in for a week-long stay. The hotel provides a room to stay along with buffet for breakfast, lunch and dinner. Apart from this, it provides laundry services, a business centre facility, valet parking, currency exchange, room service, concierge service, spas, parlours, boutiques, etc.

Note that all these services are intangible in nature as you can only experience what services you received at the hotel. However, these services have to be managed properly by the hotel’s management so that they can be delivered to customers without any hindrance.

For this, the management ofthe hotel has to decide what type of breakfast would be served and at what time it would be served; what type of room services would be provided; who would be doing what, and so on.

The nature of services provided by different businesses under the service industry is quite diverse. Also, there can be a lot of services under one business segment. For example, banking comes under the service sector and it may offer services such as issuing drafts, providing cheque books, granting loans, issuing debit and credit cards, etc.

However, it should be noted that experience that a customer gets from a product (tangible) is different from that he gets from a service (intangible). For example, each time, you buy a packet of your favourite chips, the taste remains the same. This is achieved by maintaining standards of raw materials and the production process.

This was an example of product; however, the same does not apply in the case of services. The quality of services may vary each time you consume that service. For example, two teachers who teach the same subject may teach the same concepts to the same set of students but eventually the students would be in a position to tell which teacher taught better.

In this case, the experiences of the students also vary. This is due to differentstyles and methods ofteaching adopted by the two teachers.

Classification of Services

Let usdiscuss the classification of services as follows:

Based on Tangible Actions

When services are given to customers or products are purchased by customers, it is categorised as service based on the tangibility of action. For example, services for customers include delivery offood, beauty and saloon services, T.V. repair, etc.

These services involve the service of people by people (customers by staff). Services for products include aftersales service or repair of water purifiers, television, AC, etc. These services involve service of products done by staff.

Based on Intangible Actions

When the services are directed towards customer’s mind or on intangible assets; it is categorised as service based on intangibility of action. For example, services such as education, theatre, information processing, banking, insurance, etc. are directed towards customers’ mind.

Based on Standardisation and Customisation

This classification is based on the amount of standardisation and customisation done on the service. Standardisation and customisation depend on a customer and the person providing services to the customer. For example, a hair stylist does styling as directed by the customer; however, he may also provide his suggestions.

Customisation can be done on various aspects of the service such as variety, speed, convenience, etc. In such services, the amount charged by the service provider depends on the degree of customisation. An example of a standardised service is post-paid plans offered by telecom companies.

All customers who opt for a particular standardised plan would get the same kind of services. For instance, if the plan has provision of 100 free local calls plus100 free SMS, all customers would get 100 free local calls plus 100free SMS.

On the other hand, an example of customisation is the option available to individuals to choose and set a caller tune of his/her choice. For instance, a customer ‘N may choose song 1 as his/her caller tune whereas another customer ‘B’ may choose song 2 as his/her caller tune.

Characteristics of Services

Some important characteristics ofservices are as follows:

Intangible Nature

Services usually indicate towards processes, actions or efforts and not towards any tangible product. For example, a visit to the doctor does not result in any tangible product. What the patient gets is the prescription containing the list of medicines prescribed by the doctor.

Prescription is a record keeping system and not a product. Therefore, the intangible product in this case is advice, precautions and medication prescribed to the patient.

Human Intervention and Its Degree

Services may or may not include human intervention and efforts for service delivery. Human intervention may be involved at both the customer and service provider’s ends. For example, getting a hair colour done involves human effort from the service provider whereas making payment for an online order using Paytm involves human intervention from customer’s end.

Different services involve a different degree of human intervention. For example, earlier, surgeons used to perform surgeries completely; however, nowadays robots are used by surgeons for performing complex surgeries.


Services may be manual or automated or a combination of both. For example, getting a pedicure involves manual labour, whereas getting you a cold drink from a vending machine is an automated process.


Services are consumed or availed at the point of sale at one-time only. Unlike products, a service cannot be stored for use at some other time in the future. For example, if you book a movie ticket for 1 pm but you get late by 45 minutes, you will miss 45 minutes movie.

Fluctuation of Demand

The demand for services varies at different points of time. For example, the demand for ACservice and repair increases during the summer season and decreases during the winter season.

Inseparability of Service From Provider

Services cannot be separated from the service provider which may either be a machine or a person. For example, a doctor can provide his services only when a patient is present. Similarly, students can be taught only when there is a teacher present in the class.

Heterogeneity and Service Quality

This characteristic means that each service experience is different and it is very difficult to make the entire customer service experience identical. For example, the first time you go to a doctor, the medicines prescribed by him work for you and you get well.

Thus, it gave you a pleasant experience. Now, assume that after a gap of six months, you again fell sick and went to the same doctor. He prescribed you some medicines. You took all medicines on time but this time, the medicine did not work for you and your ailment remains. Thus, it gave you an unpleasant experience despite the fact that the service provider remains the same.

Pricing of Services

In the service industry, there is great variability in the prices of similar type of services. For example, a plumber may charge higher for fixing a stainless steel tap than for fixing a plastic tap.

What is Service Process? Meaning and Classification

Service process refers to the procedure followed by a person or an organisation in delivering a service to a customer. It involves a specified way of doing things. Let us understand the concept of service process with help of an example.

When faced with an illness, you usually go to a doctor’s clinic. After enquiring at the reception, you are required to pay a registration fee along with certain other details such as patient name and age which is duly recorded in prescription and clinical records.

After successfully registering yourself, you wait for your turn to meet the doctor. The doctor then asks several questions to make a correct diagnosis. After preliminary examination, he prescribes some medicines and gives instructions as to how these medicines are to be taken. With this, the service process is completed.

Types of Service Processes

Service processes are classified into various types based on the type of service provided by the service organisation and the degree of contact. The following are different types of service processes:

Line Operation Processes

In line operation processes, there is a pre-designed sequence ofoperations. It means that operations are carried out one after the other in a pre-decided sequence. Services are produced as a result of these operations. For example, treatment of cataract requires conducting an operation of the affected eye(s). However, the doctor cannot straightaway conduct the operation.

He needs to conduct a variety of tests such as blood pressure, blood sugar, followed by atropine medicine for dilation of eyes, verifying the dilation of the eyes, measuring the eye pressure, etc. In line operations, processes must be executed in a sequential manner as prescribed and no process can bypass another process.

Note that line processes are used in service organisations which usually have high volumes of consistent demand patterns and services offered are standardised in nature.

Intermittent Operation Processes

Intermittent operations are those operations that an organisation does not conduct very frequently. These are project and need-based operations and after the need has been satisfied, operations are not repeated. Such operations are executed through intermittent service processes. For example, designing a new advertising campaign or constructing an amphitheatre.

Job Shop Operation Gobbing Processes

Job shop operationsinvolve different combinations and sequences of activities which result in different kinds of services. This means that services are customised as per the order given by the client. Service organisations that require a large degree of customisation use job shop processes.

For example, restaurants usually have set menus and dishes are prepared in a standardised manner. However, food may also be prepared apart from the set menu in case of special demand of customers.

In addition to the above types of service operation processes, service processes also vary according to the degree of customer contact involved. It is very complex and difficult to manage service processes that involve a high degree of customer contact as compared to that involving a low degree of customer contact.

This is because high customer contact service processes involve high intervention by the customer inn terms of his/her needs and inputs, which may delay service deliverables.

Systems View of Services

A system refers to a combination of processes, mechanisms, participants and/or networks that work together to produce a desired output/impact. The systems view of services suggests that the problems and components ofservices must be made a part of the service framework.

It is believed that the components of a system can be best understood iftheir inter-relationships are shown explicitly rather than in isolation. It should be noted that the systems view of services includes customers as participants in the service process.

Systems View of Services
Systems View of Services

Major components of a service system are as follows:

  • System: Any service that is to be provided to a customer must be delivered through a proper system. The system usually consists of inputs, processing of inputs and production of desired output(s). Incorrect inputs often lead to outputs, which fall short ofcustomer requirements.

    For example, if the patient fails to provide correct information to the doctor or hides his previous diseases from the doctor, the doctor may not be able to provide the correct treatment to the patient.

  • People: In the service sector, it is the people who provide services to customers. If the people are not well trained or are not able to provide services demanded by the customer, this will affect the business and sales of the service provider.

    For example, there is a restaurant famous for its biryani, which is prepared by a worker. However, the worker leaves the restaurant job. The restaurant has hired a new worker but he is unable to prepare the biryani that is similar to or better than the previous one.

    The restaurant realises that its sales are decreasing and the demand for its biryani is declining. Therefore, it can be concluded that human resources of a service organisation are very critical element of the overall service system.

  • Place: A service provider must havea designated place from where it operates its business.

  • Process: Services are provided to a customer through a pre-defined process. For example, consultancy services after receiving a consultation request, studying project details, making a report of what work has been done in the project and what work is still pending, getting associated with the project, and studying and examining the areas in which the consultee requires expert help.

    After a thorough research, the consultant provides its services that may be in any form such as report, guidance at the actual work site, etc.

  • Technology: Core service processes are integrated with technology. Service processes that can be automated through the use of technology are automated. This helps the service provider gain competitive advantage in the market.

    For example, at a car service centre, a front desk employee issues service slips and token numbers at a counter. However, if the service centre installs a machine that generates service slips and token numbers, the need for the front desk employee can be eliminated as customers can themselves generate tokens by using the customer-friendly user interface.

Service Yield Management

Yield management refers to a technique designed for managing demand and capacity by examining consumer behaviour. The behaviour of consumers is examined to determine the correct price level of a service with an aim to entice consumers.

It is a “provision of the right service to the right customer at the right time for the right price.” Yield management is presently not suitable for all service organisations as it can result in unfair pricing for consumers.

It can only be used for services having the following features:

Services Having a Relatively Fixed Capacity

Service organisations that have a relatively fixed capacity such as hotels or restaurants can utilise yield management. For example, once rooms have been rented out, it is difficult to satisfy demand without further increasing the number of rooms or restaurant space.

Services Having Perishable Inventory

Time serves as a major constraint for services. For example, an un-booked hotel room would cause a loss of revenue which could have been gained if it had been booked for a particular date.

Services Having Segmented Markets

Markets that can be segmented based on certain criteria such as price sensitivity can employ yield management.

Services Having Fluctuating Demand

Services having variable demand due to fluctuations in the market can be controlled by adopting pricing strategies. This in turn enables more efficient utilisation of the capacity available to service organisations.

Services That Can Be Sold Through Reservation Systems in Advance

Services such as booking of airline, rail or bus tickets can better use yield management as the available capacity of organisations can be efficiently utilised in advance. For example, flight seats can be booked beforehand so that there is no vacant seat.

Services Having a Low Variable to Fixed Cost Ratio

Pricing of services does involve the fixed cost of some nature such as the furniture installed in a room. Moreover, the variable cost of getting the room cleaned is low. This in turn helps in selling the room as the revenue generated by selling the room is much greater than the cost involved in its upkeep.

There are three different kinds of users of yield management. These are:

  • Sophisticated: Airlines and big hotel chains are generally considered to be the ones who utilise complex data models and information systems that enable them to predict and analyse consumer demand patterns.

  • Moderate: Small/mid-size hotels, theatres and trains employ less sophisticated and advanced yield management techniques for analysing consumer demand patterns.

  • Potential: Golf courses along with restaurants have the potential for yield management as in these businesses, a set amount of fixed time within which the service is consumed by customers.

Challenges and Risks in Using Yield Management

Revenues can be significantly boosted with the help of yield management programs. Although yield management may seem like an apt solution for matching supply with demand, it is still a risky proposition. A service organisation may encounter problems while trying to maximise its financial returns through differential capacity allocation and pricing.

Some of these challenges are:

Loss of Competitive Focus

By focusing primarily on the maximisation of profits, a service organisation may neglect other aspects of a service business which contributes towards the long-term competitive success of the organisation.

Alienation of Customers

If customers learn that they are paying a higher price than their counterparts, they may perceive it as unfair, particularly more so, if they do not comprehend the reasons for the same. Therefore, informing and educating customers is essential for the success of the yield management system.

Problems With Employee Morale

Employee morale may be affected as setting prices through yield management systems may undermine the people who set prices. Even though some executives may appreciate guidance, others may not be so receptive towards it.

Incompatibility Between Incentive and Reward Systems

Employees may harbour resentment towards yield management systems that do not match earlier practiced incentive structures. For instance, several managers are rewarded on the basis of the average rate charged or capacity utilisation while both these factors are taken into consideration by yield management systems when calculating incentives.

Inadequate Employee Training

In order to make the yield management system successful, employees need to undergo training. The employees need to comprehend the purpose of the system, its functions, how they should make their decisions and how the system would affect their jobs and responsibilities.

Unsuitable Organisation of the Yield Management Function

A service company requires a centralised reservation for its yield management system to be successful. Although airlines, big hotel chains and shipping organisations do have centralised reservation systems; smaller service organisations may have decentralised reservation systems in place which may not prove effective for implementing the yield management system.

Service Implementation Issues

Service implementation is plagued by several challenges and issues which have their roots in the service delivery business model. This is due to services being intangible in nature. Some of the challenges faced by service providers in the service implementation process are as follows:

Management Commitment

In most of the instances it is observed that once a service is launched, the management commitment diminishes. This generally happens when the management rides on initial success. Consequently, lower level employees also lose their commitment towards service delivery, which ultimately leads to the loss of customers. Top management must actively participate in the service delivery system.

Human Resource Management

Sometimes, it occurs that top management is unwilling to induct new staff members into delivery processes. Lack of skilled people for service delivery may overburden the existing staff, which can affect their productivity to a large extent.

Thus, to overcome this challenge, the management must ensure that there is an adequate number of people to handle customer demands. For example, there is an acute shortage of safety staff (trackmen, point men, patrolmen, technicians and station masters) at Indian Railways leading to several train accidents in the country.

Design of Service Processes

Complex design of service processes may lead to a difficulty in the execution of services. If a service process cannot be executed in a smooth fashion, it can lead to delays in delivery of the services which can cause customer dissatisfaction. For example, India’s first low cost carrier, Air Deccan had complex service processes, which led to flights perpetually being late.


Service organisations engaged in benchmarking compare their key metrics with that of other businesses in the industry. Benchmarking helps in understanding processes that other organisations use so that they can be applied to improve performance.

Continuous Improvement

Service quality can be maintained only if the management provides support and resources for quality assurance activities. Improvement to service quality must be made in terms of modifying the processes of the service delivery system. Furthermore, there must be a continuous improvement in service processes in order to maintain their position in the market.

Information Gathering and Data Management Issues

Often, customers are unwilling to provide accurate and complete data for the analysis of trends with respect to future modifications. The data is an integral part of service processes as it enables organisations to design and execute their processes. Therefore, it is of utmost importance for a service organisation to collect data from authentic sources and manage that data effectively.

Customer Focus

Often due to overwork and lack of management commitment, a service organisation loses customers which have an adverse impact upon the business. The company does not focus on providing exemplary services to its customers leading them to switch to other alternatives.

For example, Delhi Transport Corporation lost its customers to the Delhi Metro due to the decreasing number of buses plying on roads, their poor frequency and long waiting times at bus stops.

Service Culture

Service culture ensures that an organisation retains its existing customers and procures new ones. For example, Burger King maintains its service culture due to which it receives positive word of mouth publicity from its existing customers. This helps bring in new customers for the organisation.

Article Source
  • Johnston, R., Clark, G., & Shulver, M. (2012). Service Operations Management (2nd ed.). Harlow, England: Pearson.

  • Parker, D. (2012). Service Operations Management (1st ed.). Cheltenham: Edward Elgar Publishing.

  • Sherman, H. D.&Zhu,J. (2006). Service Productivity Management. Springer.

  • Mudie, P. & Pirrie, A. (2006). Services Marketing Management (3 rd ed.). New York: Routledge.

  • Johnston, R., Clark, G. & Shulver, M. (2012) Service Operations Management: Improving Service Delivery. Pearson Education.

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