Lecture
4.1. The market for services: concept and types. Factors influencing the development of the services market
Since ancient times, certain types of services have been bought and sold (the services of moneylenders, stewards, mercenaries, astrologers, healers, spies …). But the market for services was not considered as a separate phenomenon. It was only about the market for goods. The situation changed in the 1960s–70s, when the service sector in developed countries began to turn into a leading sector of the economy. The volumes of purchase and sale of services increased sharply. The market for services increasingly began to stand out from the previously unified market of goods and services. The market for services — is one of the varieties of market that separated out from the previously unified market of physical goods and services. The object of sale on this market is a variety of services — from the simplest to the most complex. At the same time, the market of tangible goods and the market of services cannot be clearly separated, since the sale of a service (its provision) is often linked to the sale and use of physical goods, and, conversely, the service itself, when bought and sold, acquires «commodity status», i.e. becomes a commodity.
The market for services — is a set of economic relations between producers and consumers of services in connection with the purchase and sale of various services, a constituent part of the sphere of exchange, organized according to the laws of commodity production and circulation.
As a subsystem of the market economy, the market for services functions within the existing property relations and develops as the entire market economy develops.
The market for services acts as a system that links supply and demand for services; producers of services and their consumers — owners of money. Moreover, the role of the market for services also lies in the fact that it promotes the development of the market for tangible goods, ensures the balance of the reproduction process, and the corresponding quality of life by satisfying the population’s diverse needs. Under modern conditions, the degree of development of the market for services and its structure represent one of the most important criteria of a country’s competitiveness.
Types of the services market
Characterizing the market for services involves examining its types. Using different criteria, the following types of the services market can be distinguished.
By scope of coverage (in spatial terms), a distinction is made between: world (international, external), national (within a single country, or domestic), and local (regional) markets. There is also a regional market for services, which can be either part of the world market (for example, the market for services of the EU countries, the market for services of the Asia-Pacific countries), or part of the national market (this could mean, for example, the market for services of the Baikal region, the market for services of the European part of Russia, the market for services of some particular region or a number of regions of Russia).
By degree of legitimacy: a legal (operating within the legal framework) and a shadow market for services are distinguished. For Russia, the study and assessment of these services markets are extremely relevant.
The shadow market as a whole, including the shadow market for services, exists (albeit on different scales) in all countries; moreover, due to their specific nature, it is precisely service-related activities that make up a significant part of the shadow economy.
By degree of regulation, a distinction is made between free and regulated services markets. Let us emphasize that a fully free (i.e., completely free from government regulation) market for services does not exist. Markets for such services as medical, educational, transport, and security services are quite tightly regulated.
By level of saturation, a distinction is made between unsaturated (deficit), oversupplied, and equilibrium markets. Equilibrium of the services market (like that of any other market) is an ideal state, but it can actually occur at some point in time. Deficit and oversupplied markets are characterized, respectively, by situations that have been given the names «producer’s market» («seller’s market») and «consumer’s market» («buyer’s market»).
The seller’s market is characterized by producer dominance, when demand significantly exceeds the supply of services. Competition among service producers is practically absent, as a result of which consumers are deprived of the ability to choose and are forced to use whatever services the producer offers, and the culture of their provision is quite low. In such a case, practically all services are sold, even if they do not meet consumers’ requirements and are not of high quality. Priority is given to quantity rather than quality, to which minimal attention is paid.
When the market becomes saturated with services, the consumer begins to dominate, which is why a distinction is made for the consumer’s market (buyer’s market). It is characterized by the absence of a monopoly on the production of services and, as a consequence, a certain (greater or lesser) freedom of choice for the consumer, who can give preference to services that suit them in price, service culture, and time spent. In economically developed countries, starting from the early 1950s, the supply of goods began to outpace the growth of demand for them, as a result of which the seller’s market began to turn into a buyer’s market.
Factors influencing the development of the services market
The market for services plays an increasingly important role in the socio-economic organism of modern society, so it is important to know what factors determine its development. These factors are diverse: from purely economic to mental and psychological; from macroeconomic to microeconomic. Among the factors, we note the following:
the macroeconomic role of the state, genuinely aimed at stimulating the development of the services market by creating favorable conditions for entrepreneurship, especially in small business, building an effective tax system, and a well-thought-out combination of private and public sectors in the production of services;
the level of well-being of different segments of the population and the growth of their incomes;
the state and pace of development of the technical and technological component underlying the functioning of service-related activities and the services market, which determines not only the parameters of this market but also, importantly, the modern quality of services (many types of services are becoming high-tech — cellular communications, medical, banking services);
the presence of sufficiently trained specialists, including managers and marketers. A broad network of various forms of training for those employed in small business;
traditions and mentality, which are extremely important, since the state of the services market and the system and quality of service are largely determined by the level of a society's culture, including that of all participants in the services market, and by the state of the sociocultural factor as a whole.
Each of the factors listed can be examined in greater depth.
Features of the Services Market
The study of the services market, and especially the practice of its functioning, has revealed its specific character, without knowledge and consideration of which it is impossible to succeed in the most diverse types of service activity. Both Western specialists (especially marketers) and Russian ones are drawing increasingly persistent attention to this.
In current specialized literature, the following features of the services market are usually noted:
1) a high dynamism of market processes. This is due to such a property of a service as non-storability. If services cannot be "stored," a rapid response to changes in consumer demand and continuous improvement of service activity, etc., objectively become necessary. The heightened sensitivity of the services market to economic conditions and the short response time to changes in them are compounded by the substantial influence of seasonality, advertising, fashion, and awareness;
2) a more pronounced segmentation of demand for services depending on income, prices, the consumer's subjective assessment of the significance (urgency) of the service, the availability of durable goods, as well as on national traditions and consumption patterns, lifestyle, etc.;
3) a high degree of differentiation of services as a market product in terms of consumer characteristics. This is explained by the fact that demand for services is always personified and individualized and serves as a powerful stimulus for developing ever more new services; moreover, as the population's well-being grows and material production and its results become more complex, this characteristic feature of the services market becomes ever more pronounced. Specialists believe these properties of the services market can be regarded as a crucial stimulus for innovative activity in the services sector, since "the search for a new service becomes a permanent process";
4) a more pronounced territorial segmentation and locality of the services market compared to the market for physical goods. Indeed, the structure of service-type activities and the form in which services are provided are largely determined by geographic factors: climatic conditions, local traditions, remoteness from major centers, and so on. The local nature of the services market is manifested in the fact that the need for ordinary services is, as a rule, met at the place of residence or place of work (each city district, for example, has a clinic, childcare facilities, a school, shops, cafes, personal-service businesses, etc.);
5) a high speed of capital turnover, which is objectively due to the shorter duration of the production cycle;
6) the important role of non-price barriers to entry into the services market. This feature is largely due to the fact that potential consumers of a service, when choosing its provider, as a rule pay serious attention not so much to the price level as to non-price factors: the originality of the service's execution, quality of service, the availability of modern and safe technologies (or, conversely, adherence to rare, virtually lost handcraft techniques, such as hand bookbinding or hand-painted fabrics); office interior, staff courtesy and training, a convenient work schedule, the availability of appointment booking, etc. Experience shows that entrepreneurs achieve success when the emphasis is placed not only on the service itself but also on its service component;
7) the predominant significance and "mass character" of small and medium-sized enterprises in the services market, which form the bulk of the market supply of services. Such enterprises have greater flexibility, respond more quickly to changes in consumer demand, and are able to operate effectively in local markets.
In addition, it seems worth noting that:
the services market has no clear boundaries, since, as already noted, a considerable share of services is provided in connection with the movement of physical goods or directly within material production;
the market includes a vitally important type of service with a clearly pronounced specific character — the services of natural monopolies (rail transport, the services of transport terminals, ports, and airports, the transmission of electric and heat energy, and universally accessible electronic and postal communication services);
the services market (like the service sector) has a high level of adaptability;
the services market, in a certain sense, has narrower boundaries than the market for physical goods. (The point is that, compared with tangible goods of final consumption, a very significant share of the services in any country does not enter the market directly, since it is not provided on a paid basis. Services such as national defense, the maintenance of public order… are consumed collectively and are non-rivalrous. Their production is financed from budgets at various levels.)
What enters the market almost in full are purely private goods, i.e., goods whose provision to a given individual (natural or legal person) is possible without providing them to others, owing to the fact that these goods possess the property of excludability, i.e., they are rivalrous. In other words, purely private goods are goods each unit of which can be priced and sold to a specific buyer.
The study of the services market involves examining the actors operating within it.
The main actors of market relations in the services sector are:
the state, in the person of the government, government bodies, and state enterprises;
entrepreneurs and private enterprises of various forms of ownership and management, supplying various services to the market;
households;
non-profit organizations;
The specific nature of their activity in the services market makes it necessary to single them out as a special actor in market relations, although non-profit organizations may be state-owned, private, or public.
The state, in the person of the government, government bodies, and state enterprises. The state's role in the services market is twofold. On the one hand, it stands above all economic actors, and its role consists in working out the "rules of the game" for the most diverse actors. On the other hand, state institutions and state enterprises (as well as municipal ones) produce, sell, and purchase a certain (often very important) set of services. Moreover, the state can provide paid services to enterprises and the population, but a certain portion of services is provided on a non-market basis, i.e., "free of charge," especially with regard to the production and provision of purely public goods.
In providing paid services, the state acts on the supply side of the services market. It should be borne in mind that state (and municipal) enterprises and organizations may have either commercial or non-profit status.
At the same time, the state also stands on the demand side of the market, since it purchases labor services from households in order to carry out activity within government bodies and organizations. In addition, government institutions create demand for various services provided by business enterprises.
Private enterprises of various forms of ownership and management, and entrepreneurs, supplying various services to the market. The business sector provides services to the population (households), the state, and other enterprises and organizations. The range of services in the business sector is extremely wide and diverse — from the simplest to the most complex (mobile communications, engineering services, consulting, etc.). These are usually paid services, i.e., they pass through market circulation and acquire a monetary valuation by means of market instruments. The business sector acts on both the supply and demand sides of services, i.e., it actively shapes both the volume of market supply of services and a certain portion of market demand for services. Enterprises and entrepreneurs have to purchase services provided by the state, as well as by other enterprises and entrepreneurs operating in the services sector. The objects of such purchases include transport and communication services, repair, educational, scientific-consulting, engineering, utility, healthcare services, services of cultural and sports institutions, etc.
Households. First, it is necessary to explain what is meant by a household, since Russians tend to have a lay understanding of the term. A household — is an economic unit consisting of one or several persons, usually united by a common budget and place of residence. Its characteristic features should be noted as follows:
a) households are owners of factors of production (resources);
b) they independently make decisions on the use of these factors;
c) households seek to maximize the utility of the resources available to them in accordance with their own interests.
Households include all consumers, wage earners, and owners of large and small amounts of capital, land, and means of production.
As owners of such factors of production as labor and entrepreneurial activity, households act as suppliers of services (labor, entrepreneurial activity) to the market, i.e., together with other actors, they shape the market supply of services. The buyer of these services is the state, enterprises, and, to some extent, households themselves, which hire nannies, tutors, and others for household work. In addition, households purchase various types of government services. But the largest share of the services purchased by households consists of consumer and social services necessary for everyday life. Thus, households form a huge portion of market demand for these types of services. In the modern economy, households act as one of the most important market institutions. The development and wealth of households directly affect the scale and structure of the services market. This is explained by the fact that a household always has a certain income-and-asset potential (wealth).
4. In developed countries, non-profit organizations have recently become a common phenomenon and actor operating in the services sector. These include organizations whose primary purpose is not to make a profit.
In modern society, non-profit organizations are created and operate for the following purposes:
Consequently, such organizations may include hospitals, schools, museums, libraries, theaters, scientific and information centers, universities, bar associations, trade unions, political parties, etc.
+A non-profit organization (NPO) is recognized as officially existing only after undergoing state registration as a legal entity. It may be state-owned or non-state-owned and may take the form of a public or religious organization, a foundation, an institution (state or municipal), a non-profit partnership, an autonomous non-profit organization, a consumer cooperative, or an association of legal entities (an association or union).
The receipt of profit by non-profit organizations is not prohibited by the legislation of many countries, including Russia. But, firstly, such profit must be of a limited nature, and, secondly, it cannot be distributed either among the owners (founders) or among the employees (members) of these organizations (except for consumer cooperatives), but must go toward reinvestment.
Amid intensifying competition in the domestic market and the strengthening of the globalization process at the international level, outsourcing (outsourcing) has begun to develop rapidly, consolidating its position in service-related activities as well.
The essence of outsourcing becomes evident when practically every economic entity considers the dilemma of «produce it yourself or buy it». The fact is that the desire to do everything within one’s own firm, organization, institution, or household is not always economically advantageous. In this connection, the problem of choosing «make or buy» (make or buy) arises. «Should a hospital have its own laundry and prepare dietary food, ensure its own security and have its own repair services, or is it better to buy such services from external suppliers?»
In many cases, purchasing certain material goods, including semi-finished products and components, and services from external organizations is more advantageous, which is why, under modern conditions, outsourcing is developing intensively not only in business but also in the public sector.
The following definition exists: outsourcing is the use by economic entities of external (third-party) organizations as producers and suppliers of certain physical goods and services necessary for the activities of these economic entities.
Outsourcing makes it possible, first, to reduce costs, and second, to improve quality by engaging specialized firms. More broadly, the development of outsourcing is favored by the following circumstances:
the increased cyclicality in many sectors of industrial production significantly reduces the efficiency of support services, which is why producers strive to shift the costs of performing these functions from the category of fixed costs to the category of variable costs;
specialized contracting firms focus all their attention on the industrial client enterprise, concentrating their business activity on serving it. This is precisely the core of their business, whereas for the industrial enterprise, performing support functions usually remains a secondary matter;
a specialized service firm, unlike divisions of industrial enterprises that do not experience direct competitive pressure, is more motivated to improve staff efficiency, apply more productive work methods, use advanced technologies in service delivery, and ensure the most optimal combination of price and quality of the services provided;
a specialized service firm has undeniable advantages over in-house units in terms of acquiring skills and experience in its field of activity, since it works with a wide range of clients who often face similar problems. In addition, it bears direct financial responsibility for the quality of the work performed, backing up these obligations with the corresponding legal guarantees.
Thus, outsourcing is a tool that makes it possible to optimize the configuration of business processes based on a compromise between costs, product quality, and the owner’s desire to retain control over the existing infrastructure and resources.
In addition, outsourcing is often used in cases where a firm, for one reason or another, cannot or does not want to hire an employee (employees), but has great need of their services.
Services marketing - marketing whose task is to promote a company’s services on the market.
Services marketing — a scientific discipline and branch of modern marketing that studies the features of the marketing activity of organizations whose business consists in profiting from the provision of services.
The marketing policy of a company operating in the services sector differs significantly from the marketing policy of a company working with tangible goods. This is due, first of all, to the specific nature of the «production» or provision of services. A distinctive feature of a service is that it can exist only through the interaction between the buyer of the service and the producer of the service.
Services marketing is affected by the fact that services have a number of features that distinguish them from goods:
Hence follow the specific features of services marketing, since it is impossible to become familiar with the service in advance for the reasons listed, and the buyer of services has no choice but to trust the service producer’s marketing messages about the quality and timeliness of the service provided.
Expected service — consumers’ subjective idea of the level of quality of the services marketing that will be provided to them. Externalization of services (externalization of services) — a marketing concept for the development of services, associated with the emergence of new types and forms of service activity that take on the functions of satisfying needs that were previously met by an organization’s or a household’s own efforts.
The goals of services marketing are:
Features of the marketing mix for services (4P + process, people, physical evidence).
The specific nature of services marketing is also reflected in the marketing system. The main reason for creating a special marketing communications mix in service firms lies in the need to convey to the buyer of services the very high quality of the service they are about to purchase. There are other reasons for the specific nature of the services marketing mix as well. As noted earlier, this includes the buyer's direct participation in the process of providing the service, which is no less important than the result. In addition, the impossibility of storing services requires precise calculations of a service enterprise's capacity and the matching of its supply and demand.
A services marketing model should be based on the following principles:
The concept of services marketing includes:
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