Just because there is propensity driven by unfulfilled needs, doesn’t mean it is best fulfilled by a service. Customers may choose the DIY option, because they have the ability to get it done. But ever so often then don’t for various reasons.

factor 1

The need is stronger when somebody else can do a far better job. The reason why many people go to a Michelin star restaurant rather than try to cook their own three-star dinner for a special occasion. They simply don’t have the capabilities and resources, including the skills, experience and imagination.

Service potential is stronger whenever the provider has the superior ability than the customer CR for a particular activity or task. When that somebody says, “ok here, you do it for me”, they become a buyer of a service. Uber can hail a private taxi and take care of the payment better than passengers can do it themselves.

factor 2

Commitments create constraints. The need is stronger when the constraints are more severe. Even they have the ability to get the job done customers find themselves unable to, often because they tied up with something else or being somewhere else. People can mow their own lawn, or hire someone to do it. Childcare services is another example, as well as home delivery of grocery.

Service potential is stronger when customers need leverage in the form of additional capacity. Staff augmentation services are an example of that, as are credit card transactions, insurance policies, and code shares between airlines. The augmenting capacity is as able as the capacity being augmented or replaced.

factor 3

Or, they can maintain such capacity but it simply doesn’t make any economic sense for them to do so because for the most part those assets will be underutilized. It’s why most people fly scheduled airlines rather than have their own private jet. Conversely, it’s why it makes economic sense for the government of the United States to have own and operate Air Force One. Service potential exists if enterprises are able to relieve customers altogether of carrying out certain activities and tasks. Customers delegate responsibility and authority to the service provider, and focus on other things they’d rather be doing. This is a matter of opportunity costs. It is known that, as income levels rise, individuals, households and organizations are more sensitive about their opportunity costs. That creates service potential. By assuming the economic risks and committing to owning and maintaining certain capabilities and resources, service providers are essentially saying, “We do, so you don’t have to” to enough customers.

factor 4

Even if utilization will be high, there may be high opportunity costs. In such cases it is cheaper to delegate or outsource the job or task to a service provider. In other words, pay for a service. Most companies outsource facilities management and administrative services such as payroll processing because they would rather allocate resources to activities that are core to their business. Pooling of costs and risks. By aggregating the demand and the underlying needs, service providers are able build economies of scale and scope. By doing so they are able to more efficiently get the job done, and over time do it far better as knowledge and experience accumulates in a feedback loop. In theory, there is no need for retail services or for insurance. But the cost of producing the same effect would be ridiculously high for customers they don’t think twice about it.

factor 5

Finally, with all the motivation and means, people are compelled to use a service because they lack the credibility, authority and trust from the point of view of others. For example, rules and regulations require public companies to produce financial statements audited by accredited accounting forms, armed services are always provided by government agencies because of accountability and control issues, and some financial transactions can only be settled through third-parties. Even the idea of peer-to-peer transactions within a decentralized blockchain is technically a third-party service if you exclude the parties to the transaction. The potential for some services exists simply because there are activities and tasks that produce value only when carried out by a third-party or outside agency. The service potential exists on the basis of authority, integrity, and trust.

The overall potential for a service gets stronger through the combination of two or more of the five factors p1 to p5.

Posted by:Majid Iqbal

TL;DR I bring clarity to the concept of a service.