A service economy refers to a financial concept that says that service is becoming more and more important in product offerings. While most manufacturing companies continue to sell tangible products, the intangible service that is being integrated into the product is becoming a market differentiator. The concept that products and services are interconnected, and that service represents an increasingly important part of a product, is called servitization of products. The merging of products and service 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 software application developers, now consider service to be an integral part of their product offering. These companies commonly promote their "solutions," which consist of both products and services that cannot be separated.
Services marketing consists of marketing relationships and value. This type of marketing may be based more on reputation or relationship rather than on product features. It can be difficult to compare the offerings of two or more suppliers, and service offerings typically cannot be returned. These are the features that differentiate services marketing from product marketing.
The shift toward a service economy has brought other changes in the macroeconomic environment. The present accounting methods used by both public and private-sector organizations were developed prior to the servitization of products and so are more suited to a product-based economy. Accounting reform measures have been proposed to more accurately reflect the current reality of a service economy.
One of these reforms 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 social, environmental, and other intangible costs. Full cost accounting is sometimes referred to as total cost accounting. Monetary reform, which would change the way money is utilized in the economy, may be a future byproduct of a service economy.
The service economy is impacting workers as well, as companies shift from regular, long-term employment to precarity, or work that is intermittent or insecure. Workers may be hired on a contract or freelance basis, and may work from home or telecommute. They work, and are paid, only when needed by the company. The benefit to the company is that labor costs are more closely related to output. Workers, however, have reduced job security and negotiating power.
