CLASSIFICATION OF SERVICES

1.0 Introduction

The service sector can best be characterized by its diversity. Service organizations range in
size from huge international corporations in such fields as airlines, banking, insurance,
telecommunication, hotel chains, and freight transportation to a vast array of locally owned
and operated small businesses, including restaurants, laundries, taxis, and numerous business
services. Researchers have directed much attention to the development of classification
systems for services. It is very necessary to classify any industry, especially service. The
classification helps managers understand service, the offer, the unique delivery process, and
the common problems and accordingly recognize them and manage them by bringing out
solutions. Such classification schemes help service managers to cross their industry
boundaries and gain experience from other service industries which share common problems
and have similar characteristics. Solutions to problems and breakthroughs in similar service
industries can then be applied by managers to their own service businesses. Ever since
marketing researchers started defining services, they also proposed their classification.

1.1 Learning Objectives - After studying this chapter, you should be able to know:
 Classification of Services
 Service as a process

1.2 Key Words- Service, Classification, market segment,

1.3 Classification of services

Service can be classified in several ways. Various authors have tried to classify services on
the basis of different features/ aspects such as the market segment, tangibility factor, skill
type, etc. they are enlisted as follows:
 Tangibility component
 Skill-type involved
 Goals of the business
 Regulatory dimension
 Intensity of labour used
 Consumer contact
 Place and timing
 Customization
 Relationship with customers
 Demand and supply
1.3 Categorizing service processes

Various authors have classified services on the basis of the processes, which in turn are
differentiated on numerous factors. The various service classifications are discussed in detail
in this section.

1.4.1 Market segment: Services can be classified on the basis of market segment they are
catering to. Thus we can have services catering to end-consumers, such as the hair salon and
beauty services, coaching classes, and car wash services or services catering to organizational
consumers such as management consulting, repair and maintenance services for machines,
and legal services (lovelock 1983, and Rampal and Gupta 2002).

1.4.2Degree of tangibility: According to Lovelock and Wright(1999) services can be

classified into tangible offerings, such as food services or dry cleaning, and intangible
services, such as teaching and medical services. Judd(1964) classified services as rental
goods services, such as hotel and lodging services, and car rental; owned-goods services such
as laundry, cleaning, repair of gadgets, etc. which involves repair or improvement of goods
owned by the customer; and non-goods services that cover personal experiences such as legal
services, educational services, and services (family and counselling services, job training,
etc.).

1.4.3 Skills of the services provider: Services can be provided by highly skilled labour or
unskilled labour (Rampal and Gupta 2002). Thus services can be classified as professional,
such as health/ medical services, engineering, accounting, research, management, etc., and
non-professional services such as shoe shining, laundry, cleaning services, etc.

1.4.4 Goals of the service provider: At times, services are differentiated on the basis of the
goals they pursue-whether they are profit making or non-profit making. For example, an
organization can be a profit-oriented entity, such as airlines, hotels, or restaurants. Non-profit
organizations or services include state-owned post and telegraph services, public libraries,
etc. (Kotler 1980).

1.4.5Degree of regulation: Services are also classified according to the extent of government
regulation on them (Rathmill 1974). Services, such as mass transportation systems, which
include airlines, railways, and roadways, are highly-regulated, while some face limited
regulations. The hospitality sector faces limited government regulation. There are some
services that are not regulated at all; for example, barber and beauty services, domestic help
services, etc.
1.4.6Degree of labour intensiveness: Services employees play a vital role in the delivery of
services and sometime are also a part of the service delivery (Varoglu and Eser 2006).
However, services may vary according to the extent of the labour involved. Thus, there can
be equipment-based services on the one hand and people-based services on the other
(Thomas 1978). Equipment-based services, as the name suggests, could include completed
automated services such as ATMs and vending machines, or an offering through a machine
with little or unskilled human intervention, as in movie theatres, dry cleaners, etc. They also
include services that are operated by skilled professionals, such as airlines, BPOs, etc.
People-based services can again be classified into unskilled (guards and cleaning services);
skilled (appliance repair, printing, catering, etc.); and professionals like engineering,
management consulting, data processing, medical services, etc.

1.4.7 Degree of customer contact: Chase (1978) classified organizations on the basis of the
contact time between the customers and the services staff. Thus organizations could be high-
contact or low-contact ones depending upon the time a customer spent with the service
provider. High contact service system, like in education and hospitality industry; while low
contact service is one in which the contact with service system ranges from a few minutes to
some hours. For example, appliance repair services, postal services, etc.
1.4.8 Place and time: According to Lovelock (1983), services can be classified on the basis
of the place and time of services-delivery. Thus, there can be service-site, customer-site, and
service-delivery services.

 Service-site service: the customer needs to visit the service location to avail the
service; for example, watching a movie in a theatre.
 Customer-site service: the services are delivered to the customer, like home delivery
of food items.
 Service delivery: service delivery involves the interaction between the customer and
the service provider through a physical channel such as e-mail, as in case of online
reservation of airline, railway tickets, etc.

1.4.9 Customization: According to Silvestro et al. (1992), ‘a high degree of customization is

when the service process can be adapted to suit the needs of individual customers.’ Lovelock
(1983) has also classified services as customized and standardized. A standardized service is
where the services to be provided is predetermined and predesigned. A customer may be
offered several options, all of which are predetermined and the customer can make a choice.
1.4.10 Relationship with customers: Lovelock (1983) classified services according to the
nature of relationship with customers. According to him, the relationship can be formal,
informal, ongoing, or a membership-based one. A formal relationship is exemplified in
banks, where each transaction is noted; while an informal relationship is one in which
customers are anonymous and the transactions are short-lived, as in case of watching
television. An ongoing relationship is epitomized by services of a barber or in a restaurant,
where proactive measures need to be taken to enjoy continued patronage of clients. A
membership relationship is one in which patrons (clients) must apply to become members
and their performance is reviewed over time. Sometimes service providers create special
memberships or frequent user programmes to reward loyal users. For example, airline
companies offer frequent flyer programmes for regular customers.
1.4.11 Demand and supply: Some services organizations can be classified according to the
demand for the service and the ability of the service organizations to match the demand
(Lovelock 1983). Thus the grouping can be categorized as steady like colleges where there is
a steady demand for the services; or fluctuating as in the hospitality industry where the
demand is not constant over a period of time.

1.4.12Facilities, equipment, and people: Equipment, facilities, and people form the tangible
elements of service delivery. It is important because customers use tangible clues to assess
the quality of a service provided. The more intangible a service is, the greater is the need to
make it tangible (Rafiq and Pervaiz 1995). For example in a college the classrooms, tables
and chairs, the overhead projector, and the faculty form a part of the tangible elements
(Lovelock and Wright 1999).

1.4.13 Degree of discretion: Silvestro et al. (1992) classified services according to the
degree of discretion. A high degree of discretion is exercised when front office personnel can
use judgment in altering the service package or process without referring to superiors, as in
case of management consultancy. A low degree of discretion is where changes to service
provision can be made only with authorization from superiors, like in services by news agents
and confectioners.

1.4.14 Value addition: Silvestro et al. (1992) grouped services on the basis of value addition
done by the front-office or back-office staff. According to this parameter, service can be
classified into back-office and front-office services. ‘A back-office-oriented service is (one)
where proportion of front- office (customer contact) staff to total staff is small and a front-
office-oriented service is (one) where proportion of front-office staff to total staff is large,’
for example, in management consultancy and in hospitality sector the focus is on front-office
orientation, whereas in transport service back-office orientation is predominant.
1.4.15 Product and process: Silvestro et al. (1992) also classified services as product-
oriented, where emphasis is on what the customer buys, and process-oriented, where the
focus is on how the service is delivered to the customer. Thus, restaurants and transport
service are product-focused, whereas hotels are process focused.
1.4.16 Utility creation perspective: Hsieh and Chu (1992) classified the service business
from the utility creation perspective. According to them, the value of a service business
depends on its ability to create a utility. They identified time utility and space utility as
dimensions of the service product, and people or things as the service recipients. For
example, they classified hair styling and beauty salon as time utilities where recipients could
obtain better appearance in a short while. Similarly, a space utility for people is created by a
hotel to widen the area of lodgers’ activities.
1.5 Service as a Process
A process involves the conversion of an input into an output. In services, two broad
categories-people and objects-are processed. The nature of service act can be tangible or
intangible. From an operational perspective, Lovelock and Wright (1999) categorized service
process into four broad groups-
  people processing (services directed at people on their person),
 possession processing (services directed at goods and other physical possession),
 Mental stimulus processing (services directed at peoples minds), and
 Information processing (services directed at intangible assets)

1.5.1 People processing: This involves noteworthy action directed towards people, in
particular, the bodies of persons, such as haircut, surgery, etc. Here customers must enter the
service factory/location where service providers (people/machines or both) deliver the service
benefits to them. Sometimes service providers, come to the customers along with their tools
to provide the desired benefits at locations of customers’ choice.
 Management implications: If managers think about the process and output in
terms of people/or objects being processed, it helps them to identify the
benefits being created and the non-financial costs-time, fear, pain, and mental
and physical effort-that customers incur.

1.5.2 Possession Processing: These include concrete actions to physical goods belonging to
customers. In this case, customers need not be present, but objects requiring processing must
be present. For example, lawn mowing, warehousing, laundry, etc. many such activates are
quasi-manufacturing operations, and do not always involves simultaneous production and
consumption.

 Management implications: The manager should note that the output in each
instance should be a satisfactory solution to the customer’s problem/need or
there must be some tangible enhancement/improvement of the item in
question.
 The nature of services needs to be understood. Depending on the target
segment, the offering needs to be packaged appropriately.

1.5.3 Mental Stimulus Processing:

This kind of service focuses on intangible actions directed at the minds of people. It includes
education, news, entertainment, sport, theatre, etc. In such instants customers must be present
mentally, but could be physically located either in specific services facility, or in a remote
place connected by broadcast signals or telecommunication linkages. Thi9s is in sharp
contrast to people processing where people must be present physically, e.g. hair cut, or air
travel. As these kinds of services, i.e. advertising, consulting, etc. pertain to people minds and
have the power to influence attitudes, there is lot of scope for manipulation; hence, strong
moral standards and cautious oversight is required on the part of the service providers.

 Management implication: As core content of all services in this category is

information-based, which can easily be recorded and transformed to manufactured
product, this service can thus be ‘inventoried’.

1.5.4 Information processing: This describes indistinguishable action directed at the

customer’s belongings or assets. In service sectors such as insurance and banking, little direct
contact is needed with the customer, once the request for service has been set in motion. The
extent of customer involvement is determined more by convention, and a personal desire to
meet the supplier face to face than by operational need.
Management implication: Information is the most intangible form of service output but can
be transformed into more enduring tangible forms such as reports, books, tapes, diskettes,
etc.. This relationship can also be created and maintained of managing people-processing
service.
1.6 Importance of classification system The purpose of the development of classification
system for services can be multidimensional. Hafer (1987) compiled the following reasons to
classify products/services and the advantages thereof:
 Classification helps to understand the needs of consumers and their motivation for
making purchases. This helps a marketer to stay abreast of changes in the needs of the
consumers.
 It helps a marketer to understand pre-purchase and post-purchase buyerbehavior. This
provides insights into the consumers approach at evaluating services. Their sources of
information, and judgment of a products absolute and relative performance.
 Classification can help service providers formulate strategies for groups of
products/services. Such strategies save time and effort and can become the foundation
for the marketing mix of the firm.
 Classification helps to identify whether products/services have complements in other
industries or business and identify strategies for possible adoption. It is a benchmark
to list the service types or organizations, which are felt to fit into the groupings.
 Classifying services acts as a checklist of service dimensions possessed by service
providers and helps to determine their strategic positioning. This further helps to
determine the strengths and weaknesses of a particular service, i.e., determine areas of
excellence as well as areas that need to be worked upon, abolished, or reduced.
It also helps to determine the competitor set. This also leads to the determination of
the competitor’s strengths and weaknesses, which could enable a marketer to identify
strategic gaps that represent growth potential or high risk.

Conclusion:
Designing a service product is a complex task that requires an understanding of how
the core and supplementary services should be combined, sequenced, and scheduled
to create an offering that meets the needs of target market segments. Many firms
create an array of offerings with various performance attributes and brand each
package with a distinctive name. However, unless each of these subbrands offers and
fulfils a meaningful value proposition, this strategy is likely to be ineffective from a
competitive standpoint. In particular, creating a distinctive branded service experience
for customers requires consistency across all product elements and at all stages of the
service delivery process.
Classification of services helps to understand the needs of consumers and their
motivation for making purchases. This helps a marketer to stay abreast of changes in
the needs of the consumers.