Idea of service leading to sustainability

From “goods or services” to “goods & services”

Japan has been known for its strength in the manufacturing industry. Because of this, perhaps many people assume that the secondary industry, i.e., the manufacturing industry, accounts for the largest part of GDP.

However, in fact, the third industry, or so-called service industry, accounts for about three quarters of GDP. Also in other advanced countries, about 70-80% of GDP, and in emerging countries, 50% or more of GDP, are generated from the service industry.

When we look at Japan only, the people have the necessary goods to live their lives, and nowadays many people are spending more money for services such as leisure and entertainment, and education and medical care, rather than for buying goods.

In other words, we could say that there are many people who feel value in the benefits gained from services rather than benefits gained from goods. Also, according to an opinion poll by the Cabinet Office, more than half of the people answered that they would like to value wealth of mind more than material wealth.

For example, when television appeared for the first time, people were amazed by the fact and its function that they could witness things and information that were happening far away from them, and they wanted those televisions. Also after that, their improving functions, such as color displays and liquid crystal flat-screens, have attracted many people and stimulated their buying interests. However, the improvements of TV image quality to 4K and 8K in recent years did not attract the similar level of interest or buying inclination as compared to when people saw television for the first time.

There is a law which says “people’s recognitions are proportionate to the logarithm of the strength of a given stimulation.” That is to say, when the stimulation caused by the addition of functions and improvement of performance increases, the level of a person’s recognition of the stimulation increases, but the level will gradually decrease.

In other words, the stimulation effect of the performance and function aspects of the goods of TV, such as high image quality and thinness and lightness so that it can be hung on the wall, will weaken more and more.

However, it does not mean that goods do not have value but services do have value. Rather, it seems correct to say that it is important to think about goods & services together instead of goods or services. This means that both goods and services are tools to generate values.

In service marketing, “service and co-creation,” “service ecosystem,” and “sustainability” are important keywords. Let us look at each of them.

Service and co-creation

What do you think about when you hear the word “service”? Some may imagine that service = free of charge! and some may think that service = intangible.

Common examples of a service used to be something like having a haircut at a hair salon, enjoying an amusement park, and eating at a restaurant. The word “service” has been used to indicate intangible goods as opposed to tangible goods.

In marketing, traditionally, the mainstream idea has been how much profit companies can make by how well they can sell goods to customers, whether they are tangible or intangible. Companies provide customers with tangible and intangible goods and customers pay money as compensation. In other words, this is an exchange of goods and money. In the marketing field we call this an exchange value.

When we try to create an exchange value based on technology, the aforementioned law of “people’s recognitions are proportionate to the logarithm of the strength of a given stimulation” will function. As a result, goods will be commoditized and fall into price competition, as was the case with many home electric appliances.

Against an exchange value, the idea of co-creation has become a worldwide trend since about 20 years ago. Instead of thinking about tangible goods and intangible goods separately, in this approach, both goods are regarded as a resource for creating a value, and companies and customers together co-create a value. This is the new definition of a service.

North America and Northern Europe are the leaders in the study of services under this new definition.

In North America, as the profit margin of tangible goods has decreased, the service study has developed as a strategy for a company to increase profit. For example, it is the sort of case in which a manufacturer does not simply produce and sell products, but focuses on the use after the product is delivered to the customer, and provides a supporting service together with the product.

Furthermore, instead of simply gaining the revenue by providing users with tangible goods and intangible goods, business models emerged such as sharing and subscription services, by which they co-create a new value with users. These models often use IT especially so that both companies and users can gain value.

Toward service as Northern European-style sustainability business

In Northern Europe, where studies on services are advanced together with North America, services have developed mainly because of the sense of crisis against the economic structure which repeats mass production, mass consumption, and mass disposal.

We can feel that from their daily lives. For example, in Sweden, where I am conducting my research, when people make a decision on a purchase, one of the important judgment criteria is whether they can use up everything or whether they can continue to use it.

Vegetables and fruits are sold by weight, and people can purchase them as much as necessary. Concerning clothing, it is thought to be elegant to select items that can be worn for a long time even if they cost a bit more, or to be dressed nicely combining secondhand items.

When we walk down the street, we notice that many people are wearing rucksacks from the same maker. It is not because they are fashionable, but many people keep using the rucksacks that were bought when they entered primary school just like Japanese children’s school bags.

In Northern European countries they do not pursue economic prosperity while putting a burden on the environment. Each individual is trying to realize a sustainable social system by changing his/her way of life.

Although Sweden is a small country from an economic perspective, it is top in the world with respect to innovation indicators and the number of unicorn companies per capita.

Startups with innovative ideas succeed in the co-creation of values continuously together with funding to realize ideas and cooperation with government, suppliers and partner companies, customers, etc.

As such, a system in which various organizations and people are connected as a network and engage in co-creation activities called services is referred to as a service ecosystem. So far, supply chains and value chains have been one-directional lines. However, business from now on will become a network-style service ecosystem.

In a service ecosystem, companies and users who participate in the service process are actors in equal positions, and the overall value will increase when the actors bring resources together. If this mechanism functions well, rather than the zero-sum game in which some actors are more burdened or some actors are dominating the value, we can achieve a more sustainable and happier society.

For Japanese society to move a step further forward

A Northern European-style service ecosystem has different ideas from the North American style. However, both are the same in the sense that many actors co-create values.

Turning to Japan, how is it here? The word SDGs has become a buzzword. However, is its meaning and significance really understood? If they are mentioning SDGs to improve the companies’ brand or raise the stock price, such an attitude is too different from Sweden.

I hear opinions that in Japan many people properly sort garbage. However, do they know what is going to happen afterwards to the sorted plastic garbage?

In fact 50% or more are burned. In doing so, CO2 and harmful substances are inevitably emitted. When we know that, we understand that it is important that we do not create garbage in the first place, before sorting it.

It is very important to follow determined rules, and Japanese are good at this. If we can go another step further and if we are interested in the meaning and the significance of the rule, and if each of us can think about a better rule, I think it will lead to the improvement of the world as well as Japanese society.

* The information contained herein is current as of July 2023.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.

Information noted in the articles and videos, such as positions and affiliations, are current at the time of production.