Types of services

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Types of services
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Types of services - is the set of classification schemes used in economics, marketing and operations management to group services by what they are, who receives them, how they are produced and how much the customer takes part in producing them. No single list exists. Statisticians sort services by industry, marketers by the nature of the service act and the relationship with the customer, operations managers by labour intensity and the degree of customer contact[1].

Why bother classifying at all? Because a hospital, an airline and a tax adviser are all "services", yet they share very little in daily management. Lumping them together hides the differences that matter for pricing, staffing, capacity and quality control. A good classification puts the hospital next to the car repair shop (both fix things that arrive broken, one at a time) and shows a manager which lessons travel from one industry to another. That was Christopher Lovelock's argument in 1983, and it still holds.

Characteristics of services

Most textbooks start from four features said to separate services from physical goods. Zeithaml, Parasuraman and Berry, reviewing the literature of the 1970s and early 1980s, found them cited again and again and summarised them as the core of services marketing thinking[2]. The acronym IHIP comes from their initials:

  • Intangibility - a service can't be seen, touched or stored before purchase. A customer buys a promise. That makes evaluation hard and pushes firms towards physical evidence (uniforms, offices, brochures) that signals quality.
  • Heterogeneity - output varies from one provider to another, from one day to another, even from one customer to another. Two haircuts by the same stylist differ.
  • Inseparability - production and consumption happen at the same time, usually with the customer present. The patient must be in the dentist's chair.
  • Perishability - unused capacity disappears. An empty seat on a flight that has left is lost revenue that no warehouse can save.

Critique of IHIP

The four features worked as a teaching device for two decades. Then the cracks became hard to ignore. Lovelock and Gummesson argued in 2004 that none of the four characteristics applies to all services, and that several apply to some goods as well[3]. Software, recorded music and insurance contracts aren't produced in the presence of the buyer. Car washes and automated teller machines are highly standardised. Many services leave tangible traces: a repaired car, a printed report, a cured patient.

Their proposed replacement? The nonownership perspective. Services, in their view, are market transactions in which the customer gains access to labour, skills, facilities, systems or goods for a period of time but doesn't acquire ownership of anything. Renting a car, staying in a hotel, hiring a consultant or using a streaming platform all fit. Not everyone accepted this alternative, and the debate fed directly into the service-dominant logic that treats all economic exchange as service exchange.

Classification by economic sector

The oldest and most widely used grouping is statistical. Official classifications divide the economy into industries, and services form the residual "tertiary" part after agriculture, mining, manufacturing, utilities and construction. In the UN International Standard Industrial Classification (ISIC Rev. 4), service activities occupy sections G to U[4]. The European NACE Rev. 2 classification is derived from ISIC and uses the same 21 sections at the top level:

Section Activity
G Wholesale and retail trade; repair of motor vehicles and motorcycles
H Transportation and storage
I Accommodation and food service activities
J Information and communication
K Financial and insurance activities
L Real estate activities
M Professional, scientific and technical activities
N Administrative and support service activities
O Public administration and defence; compulsory social security
P Education
Q Human health and social work activities
R Arts, entertainment and recreation
S Other service activities
T Activities of households as employers
U Activities of extraterritorial organizations and bodies

Statistical sections are handy for measuring the service economy, comparing countries and tracking structural change. For management they are blunt: one section can hold a single physiotherapist and a large university hospital.

Two other economic splits appear constantly in practice:

  • Consumer versus business services - consumer services (retail banking, tourism, personal care, entertainment) are bought by households for final consumption. Business-to-business services (auditing, logistics, IT maintenance, advisory services, facility management) are inputs into other firms' production. Many of them are candidates for outsourcing or shared service centres.
  • Public versus private services - public services are financed mainly by taxes and provided by government bodies or contracted providers (schools, police, public health care). Private services are sold on the market. The line is blurry. Hospitals, waste collection and postal delivery switch sides from one country to another.

Lovelock's classification schemes (1983)

Lovelock's article in the Journal of Marketing proposed five classification schemes, each built as a two-by-two or similar matrix[1]. The best known asks two questions: what is the nature of the service act (tangible or intangible actions), and who or what receives it (people or possessions)?

Recipient: people Recipient: possessions
Tangible actions Directed at people's bodies: health care, passenger transport, beauty salons, restaurants Directed at goods and physical possessions: freight transport, repair and maintenance, laundry, cleaning
Intangible actions Directed at people's minds: education, broadcasting, theatres, museums Directed at intangible assets: banking, legal services, accounting, insurance

In later editions of his textbook these four cells became people processing, possession processing, mental stimulus processing and information processing[5]. The practical point is simple. People processing requires the customer's physical presence, so location, opening hours and the look of the facility matter a lot. Information processing can usually be done remotely, which is why it was the first to move online and offshore.

The four remaining schemes in the 1983 article sort services by:

  • the type of relationship with customers (formal "membership" versus no formal relationship; continuous versus discrete delivery),
  • the room for customisation and for judgement by contact personnel,
  • the nature of demand relative to supply (how widely demand fluctuates and whether peak demand can be met),
  • the method of delivery (customer goes to the provider, provider goes to the customer, or arm's-length transactions by mail or electronic channels; single site versus multiple sites).

Membership relationships make it possible to know who the customers are and what they use. Banks and insurers have this; cinemas and toll roads usually don't. That one difference changes how customer relationship management can be done.

Shostack's goods–services continuum

Lynn Shostack, a banking executive, attacked the habit of treating services as a strange kind of product in her 1977 article "Breaking Free from Product Marketing"[6]. She argued that almost every market offering is a combination of tangible and intangible elements. Her scale ran from tangible dominant offerings (salt, soft drinks, detergents, automobiles) through balanced ones (fast-food outlets) to intangible dominant ones (advertising agencies, airlines, investment management, consulting, teaching).

The continuum matters for two reasons. First, it removes the false choice between "a good" and "a service" - a restaurant meal sits in the middle. Second, it explains why marketing tools designed for packaged goods work badly for consulting firms, and why intangible-dominant services need tangible evidence to persuade buyers.

Chase's customer contact model

Richard Chase took an operations perspective. In "Where Does the Customer Fit in a Service Operation?" (1978) he argued that the more time the customer spends inside the service system, the harder it is to run the system efficiently[7]. Customer contact was measured as the share of the service creation time during which the customer is present:

\[ \text{Customer contact} = \frac{\text{time customer spends in the system}}{\text{total time of service creation}} \]

Potential efficiency falls as contact rises. Chase sorted operations into three groups:

  • pure services - high contact, e.g. health centres, hotels, public transport, restaurants, schools,
  • mixed services - medium contact, e.g. bank branch offices, real estate agencies, post offices,
  • quasi-manufacturing - low contact, e.g. bank back offices, wholesale houses, mail sorting.

The managerial message: separate the high-contact front office from the low-contact back office, then run the back office like a factory. Cheque clearing, claims processing and laundry rooms can be scheduled, batched and automated. The reception desk can't.

Schmenner's service process matrix

Roger Schmenner (1986) combined two dimensions into one of the most cited frameworks in service operations management[8]:

  • Degree of labour intensity - the ratio of labour cost to the value of plant and equipment. Low labour intensity means a capital-heavy operation.
  • Degree of interaction and customisation - how much the customer interacts with the process and how far the service is tailored to the individual.
Low interaction and customisation High interaction and customisation
Low labour intensity Service factory: airlines, trucking, hotels, resorts and recreation Service shop: hospitals, auto repair, other repair services
High labour intensity Mass service: retailing, wholesaling, schools, retail side of commercial banking Professional service: doctors, lawyers, accountants, architects

Each quadrant carries its own management agenda. Service factories worry about capital decisions, technology and smoothing demand peaks, since idle aircraft or empty rooms are costly. Service shops have to schedule specialised equipment and still deal with each customer as an individual. Mass services need to hire, train and control large numbers of employees. Professional services fight rising costs, keep skilled staff and try to preserve quality while each job is different.

Schmenner's real interest was movement. Firms don't stay put in the matrix; they reposition themselves as they change their processes, and he used the matrix to trace those strategic shifts. A restaurant chain that standardises its menu and kitchen equipment slides towards the service factory. A hospital that opens a standardised outpatient unit pushes part of its work out of the service shop. Moving towards less labour and less customisation usually lowers costs. Moving the other way can be a deliberate escape from price competition.

Core and supplementary services

Another way to classify services looks inside a single offering. Lovelock's flower of service separates the core service (the reason the customer buys: transport from A to B, a night's sleep, a loan) from supplementary services that surround it like petals[5]. There are eight petals in two groups:

  • facilitating supplementary services - information, order-taking, billing, payment,
  • enhancing supplementary services - consultation, hospitality, safekeeping, exceptions.

Core services tend to become commodities. Competitors match them quickly. The petals are where differentiation, customer satisfaction and loyalty are often won or lost: an airline whose seats are like everyone else's can still stand out through its booking app, baggage handling or the way it deals with a missed connection.

Digital and self-services

Information technology created a category that the 1970s frameworks barely anticipated. In self-service technologies the customer produces the service alone through an interface - ATMs, check-in kiosks, online banking, self-scanning tills, booking platforms. Seen through Chase's lens, contact with staff drops to almost zero while contact with the system remains. In Schmenner's matrix such services move to the service factory corner: low labour intensity, high standardisation (though algorithms can now personalise at scale, an echo of mass customization).

Digital services also weaken the IHIP characteristics. A streaming film is intangible yet perfectly homogeneous, separable from the provider and storable in a sense. Inseparability survives only as the need for the customer to be connected. That's partly why Lovelock and Gummesson's access-based view gained ground[3].

Example of classifying services

The following example is hypothetical. A consultant wants to place five services in Schmenner's matrix. She measures labour intensity as annual labour cost divided by the value of plant and equipment (threshold: ratio above 1.0 = high labour intensity) and scores interaction and customisation on a 1-10 scale each, using their average (threshold: above 5 = high).

Service Labour cost (m €) Plant and equipment (m €) Labour ratio Interaction Customisation Average score Quadrant
Regional airline 40 160 0.25 2 2 2.0 Service factory
Car repair workshop 0.6 1.0 0.60 6 8 7.0 Service shop
Supermarket 1.8 1.2 1.50 2 3 2.5 Mass service
Law firm 4.5 0.5 9.00 9 9 9.0 Professional service
Mobile banking app 2 10 0.20 3 4 3.5 Service factory

Some results are obvious. Others aren't. The car repair workshop employs mechanics, so it looks labour intensive, but its lifts, diagnostic equipment and premises are worth more than its annual payroll - it lands in the service shop. The law firm sits deep in the professional corner with a ratio of 9.0. The mobile banking app ends up next to the airline: capital (IT systems) dominates and every customer gets essentially the same interface.

What does the manager learn? For the supermarket, the main issues are staff scheduling and training (mass service). For the airline and the app, capacity utilisation and technology investment. For the law firm, keeping talented people and controlling costs per case. Same word, "service". Very different jobs.

Advantages of service classifications

  • They show which industries face similar problems, so that solutions can be borrowed across sector boundaries (airline pricing techniques adopted by hotels and car rental firms, for instance).
  • They help set strategy - a firm can decide deliberately to move in Schmenner's matrix or along Shostack's continuum instead of drifting.
  • Contact-based classifications guide process design: what to automate, what to keep personal, where to put the quality checks.
  • Sector classifications allow measurement and comparison of the service economy across countries and over time.
  • The flower of service gives a practical checklist for designing and improving offerings, and for spotting waste in supplementary processes.

Limitations of service classifications

  • Most frameworks were built in the 1970s and 1980s for face-to-face services and fit digital and platform services poorly.
  • Two-by-two matrices force continuous dimensions into categories. A service close to a threshold may jump quadrants after a small change in measurement.
  • The same firm often runs several types at once. A hospital has a service shop (surgery), a mass service (outpatient clinic) and a service factory (laboratory).
  • IHIP characteristics, the starting point of many classifications, don't hold for many services, as Lovelock and Gummesson showed.
  • Statistical classifications follow the main activity of a unit, so services provided inside manufacturing firms (design, maintenance, after-sales) remain invisible in service statistics.

Related approaches

Classifications don't stand alone. SERVQUAL and service quality determinants describe how customers judge services regardless of type. The marketing mix extended to 7P (adding people, process and physical evidence) was a response to the same characteristics that classifications describe. Service-dominant logic goes furthest: it treats goods as distribution mechanisms for services, which makes the goods–services boundary irrelevant. Work on innovation in services uses the classifications to explain why innovation looks different in a law firm than in a logistics company.

References

Footnotes

  1. ↑ Lovelock C.H., Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, 1983, pp. 9-20
  2. ↑ Zeithaml V.A., Parasuraman A., Berry L.L., Problems and Strategies in Services Marketing, Journal of Marketing, 1985, pp. 33-46
  3. ↑ Lovelock C., Gummesson E., Whither Services Marketing?, Journal of Service Research, 2004, pp. 20-41
  4. ↑ United Nations, International Standard Industrial Classification of All Economic Activities, Revision 4, 2008
  5. ↑ Wirtz J., Lovelock C., Services Marketing: People, Technology, Strategy, World Scientific, 2021
  6. ↑ Shostack G.L., Breaking Free from Product Marketing, Journal of Marketing, 1977, pp. 73-80
  7. ↑ Chase R.B., Where Does the Customer Fit in a Service Operation?, Harvard Business Review, 1978
  8. ↑ Schmenner R.W., How Can Service Businesses Survive and Prosper?, Sloan Management Review, 1986
Types of services — recommended articles
Service — Consumer services — Service economy — Service operations management — Service dominant logic — Innovation in services — Quality of service
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