A service is basically a transaction where no tangible goods are exchanged between the seller and the buyer. The advantages of such a service have been demonstrated by the many buyers’ willingness to make the transaction voluntarily. Private services are those which society as whole normally pays for.

Service industries fall into two categories: tangible goods and intangible goods. There are service industries which produce goods such as travel, accommodation, education, telecommunication etc and there are also other service industries such as legal, medicine, law, accounting etc. In this article we will study the first category of tangible goods. But before discussing about the benefits, let us first define what a service industry is.

Every service industry is associated with some production process. This production process could be physical, logical or digital. Some examples of physical production processes include manufacture, construction, mining, food processing, health care, etc. Some examples of logical production processes include marketing, advertising, management, human resource management etc. And some examples of digital production processes include software engineering, web design, email marketing etc.

Let us take up the example of tourism. A tourism company can produce any service. However the production process is normally not physical. Production costs are high and so the output tends to be very low. Tourism is related to some activities which do not need to take place physically in any case and therefore the output is also of very low quality. But tourism is generally a peak level service whereas the production of tourism products can be done in a digitized way and therefore tends to be much higher quality than the intangible product.

On the other hand we have the service sector which is related to some activities which require physical presence such as sales, customer service, administrative, clerical, etc. In such cases there is no scope for producing a good quality output because these activities need to take place in front of the customer and if the customer is not happy then you will lose your business. Hence the quality of the service output is very high and hence the value of the service output is also very high. Hence the profit margin of the service sector is very high. So the value of the service output is much lower than the value of the intangible product and the profit margin is therefore much lower.

Hence both the types of businesses have different needs and are therefore both capable of satisfying those needs in different circumstances. The problem arises when a service provider tries to satisfy both needs at the same time by producing both physical as well as non-physical output. Hence the quality of the service output tends to drop because of competition from service providers who are trying to provide both non-physical and physical products. Hence we can conclude that the problem of service quality is caused by competition between service providers rather than by the quality of service itself.