Service (economics)

In economics, a service is a transaction in which no physical goods are exchanged. The benefits of such a service are held to be demonstrated by the buyer's willingness to make the exchange. Public services are those, that society (nation state, fiscal union, region) as a whole pays for. Using resources, skill, ingenuity, and experience, service providers benefit service consumers.

Services can be described in terms of their key characteristics, sometimes called the "Five I's of Services".

Services are by definition intangible. They are not manufactured, transported or stocked.

Services cannot be stored for a future use. They are produced and consumed simultaneously.

Services are perishable in two regards:

The service provider must deliver the service at the time of service consumption. The service is not manifested in a physical object that is independent of the provider. The service consumer is also inseparable from service delivery. Examples: The service consumer must sit in the hairdresser's chair, or in the airplane seat. Correspondingly, the hairdresser or the pilot must be in the shop or plane, respectively, to deliver the service.

Each service is unique. It can never be exactly repeated as the time, location, circumstances, conditions, current configurations and/or assigned resources are different for the next delivery, even if the same service consumer requests the same service. Many services are regarded as heterogeneous and are typically modified for each service consumer or each service context. Example: The taxi service which transports the service consumer from home to work is different from the taxi service which transports the same service consumer from work to home – another point in time, the other direction, possibly another route, probably another taxi driver and cab.

Both service provider and service consumer participate in the service provision.

Mass generation and delivery of services must be mastered for a service provider to expand. This can be seen as a problem of service quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent service quality. Many services involve variable human activity, rather than a precisely determined process; exceptions include utilities. The human factor is often the key success factor in service provision. Demand can vary by season, time of day, business cycle, etc. Consistency is necessary to create enduring business relationships.

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