Business Services

Written and reviewed by Rohit Singh, Computer Science & Commerce faculty at UniDrill (MCA, Osmania University · 6 years teaching). Based on NCERT Business Studies Class XI, Chapter 4.

What did you actually buy?

You pay Rs 300 for a haircut. When you leave, you own nothing you can carry, resell or return. Yet you paid for something real. Now compare it with a Rs 300 shirt. You can hold it, keep it for years and sell it. The shirt is a good. The haircut is a service. A business service such as a bank loan, a train ticket or an insurance policy works like the haircut: you buy an experience or protection, not an object. Almost every business depends on these services, and CUET tests them every year.

Goods and services: the five Is

A good is a physical product that can be delivered to a buyer, and buying it transfers ownership. A service is a separately identifiable, essentially intangible activity that satisfies a want and is not necessarily linked to the sale of a product. The shortcut: goods are produced, services are performed.

Pause and predict: A salon has six empty chairs on a Tuesday afternoon. It cannot sell that time on Saturday. Which I explains this?

Check your answer: Inventory-less. Unused service capacity cannot be stored for later.

Services are of three kinds. Business services (banking, insurance, transport, warehousing and communication) are used by businesses and by people. Social services are provided voluntarily for social goals, such as health and education work by NGOs. Personal services are experienced differently by different customers, such as tourism and restaurants. This chapter deals with business services.

Beyond the textbook. For the exam: goods and services are two separate types, and the five Is describe services. In reality: most offers are a bundle of both. A restaurant sells food, which is a good, and the cooking, serving and ambience, which are services. Why it matters: when a CUET case describes a mixed offer, pick the answer for what the question focuses on, and look for words like "intangible", "performed" or "no ownership transfer" to confirm a service.

Banking: the business of money

A bank accepts deposits of money from the public for lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft or order. The-Banking Regulation Act, 1949 gives this definition for India.

What commercial banks do. Their two primary functions are accepting deposits and lending funds.

Banks also provide secondary services: cheque facilities (bearer and crossed cheques), remittance of funds (bank draft, pay order, mail transfer), and extras such as bill payment, locker facilities, underwriting of shares and debentures, and collection of dividends.

e-Banking. Electronic banking lets customers use-banking services through the internet, a mobile phone or a similar device.

Customers gain from 24-hour service, access from anywhere, easier financial discipline and the safety of not carrying cash. Banks gain a competitive edge, a wider network and less crowding in branches.

Mini case. Sahil owns a printing press. He opens a current account for daily business, takes an overdraft to cover a slow month, sends a supplier Rs 40 lakh through RTGS, and uses a PoS machine to take card payments from walk-in customers. All of these are-banking services.

Beyond the textbook. For the exam: NEFT and RTGS are the two-ways of doing an electronic fund transfer. In reality: RTGS settles each transaction individually and in real time, and is meant for large amounts with a minimum of Rs 2 lakh. NEFT settles in batches and suits smaller amounts. Why it matters: the textbook stays the exam answer. A case with a very large payment needing an instant, final transfer points to RTGS.

Insurance: spreading the loss

Insurance is a device by which a loss likely to be caused by an uncertain event is spread over a number of persons exposed to it. The person who wants protection (the insured) pays a premium to the insurer, who agrees to pay an agreed sum if the uncertain event happens. The written contract is the policy. Insurance gives certainty of payment, protection from probable loss, sharing of risk, and capital formation because premiums are invested.

The seven principles. CUET tests each as a one line definition or in a case.

Indemnity does not apply to life insurance. A human life cannot be valued in money, so a fixed sum is agreed in advance.

Life, fire and marine insurance compared. This is the highest yield table of the chapter.

Types of life policy. A whole life policy pays only on death. An endowment policy pays on reaching a stated age or earlier death. A joint life policy pays the survivor. An annuity pays in instalments after a stated age. A children's endowment policy provides money for a child's education or marriage.

Mini case. Asha Textiles insures a cargo of cloth going to Dubai, the ship carrying it and the freight due for the trip. This is marine insurance covering three subjects. When the ship is damaged by a storm, the loss is paid. It would not be paid if the cloth had been lost because a clerk shipped the wrong bales.

Pause and predict: Raju insures his shop against fire. Before the shop burns, he sells it to Meena, and the fire occurs afterward. Can Raju claim?

Check your answer: No. In fire insurance the insurable interest must be present at the time of the loss as well as when the policy is taken. Raju no longer has any interest in the shop.

Communication services

Communication removes the hindrance of information. It has two branches.

Common mix-up. VSAT is a two-way data service, while DTH is a one-way television service. Both use satellites.

Transportation and warehousing

Transport removes the hindrance of place. It carries goods from where they are produced to where they are used, by rail, road, air and sea. India has invested in roads such as the Golden Quadrilateral linking Delhi, Mumbai, Chennai and Kolkata.

Warehousing removes the hindrance of time. Modern warehouses use automated conveyors, computer-operated cranes and logistics software, so they are now part of the logistics chain, not just storage sheds.

Six functions of warehousing. The two that students mix up most are consolidation and break the bulk.

Mini case. A tile maker has three plants in different towns. At a port warehouse the tiles from all three are combined into one container for export. That is consolidation. When the container reaches the buyer's city, the importer's warehouse splits it into small lots for dealers. That is break the bulk.

Exam traps

60-second revision

Where this chapter connects

• Previous: Private, Public and Global Enterprises explains the public and private enterprises that deliver many of these services.
• Next: Emerging Modes of Business shows how e-banking and online delivery changed the way services reach customers.
• Earlier idea: Business, Trade and Commerce introduced transport, banking, insurance, warehousing and communication as auxiliaries to trade.