The service economy is becoming increasingly important, with service integrated into products as a market differentiator. The information revolution is driving this change, with companies promoting solutions that combine products and services. Service marketing is based on relationships and marketing value, and accounting reform measures have been proposed to reflect the current reality of a services economy. The shift towards a service economy impacts workers, who may have reduced job security and negotiating power.
A service economy refers to a financial concept that states that service is becoming increasingly important in product offerings. While most manufacturing companies continue to sell tangible products, the intangible service that is integrated into the product is becoming a market differentiator. The concept that products and services are interconnected, and that this service is an increasingly important part of a product, is called servitization of products. The merging of products and services is said to occur on a service-product continuum.
The information revolution is a key driver of the service economy or service system. Manufacturers of computer hardware and software, as well as developers of software applications, now consider the service as an integral part of their product offering. These companies commonly promote their “solutions”, which consist of products and services that cannot be separated.
Service marketing is all about relationships and marketing value. This type of marketing can be based more on reputation or relationship rather than product characteristics. It can be difficult to compare offers from two or more providers, and service offers are usually not returnable. These are the characteristics that differentiate service marketing from product marketing.
The shift towards a service economy has brought about other changes in the macroeconomic environment. The current accounting methods used by public and private sector organizations were developed before the servitisation of products and are therefore more suited to a product-based economy. Accounting reform measures have been proposed to more accurately reflect the current reality of a services economy.
One such reform is full cost accounting, which refers to a method that takes into account not only the economic costs of a given proposal, but also the intangible social, environmental and other costs. Full cost accounting is sometimes referred to as total cost accounting. Monetary reform, which would change the way money is used in the economy, could be a future byproduct of a service economy.
The service economy also impacts workers, as firms move from long-term regular employment to precarious, intermittent or insecure work. Workers can be employed on a contract or freelance basis and can work from home or telecommute. They work and get paid only when needed by the business. The benefit to the company is that labor costs are more closely related to production. Workers, however, have reduced job security and negotiating power.
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