Service Innovation

Updated on March 27, 2024
Article byNanditha Saravanakumar
Edited byNanditha Saravanakumar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Service Innovation?

Service innovation, as the term suggests, refers to a new and improved way of providing customer service. Currently, it involves employing digital and technological innovations to offer a satisfactory customer experience. The main focus of any innovation should be on making a process easy and less time-consuming for customers.

Service Innovation

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Customer service innovation can be an improvement in an existing service or an entirely new service. This should help the firm retain its existing customers and acquire new ones. While an extremely important idea for service-based companies, it applies to product-based companies too. 

Key Takeaways

  • Service innovation refers to any positive changes in the services sector that alter how services are provided or introduce new services.
  • The main aim of innovative services is to simplify existing customer processes to enhance ease and speed.
  • Innovation can be a game-changer for companies that help them to stay at the top of the charts and earn brand loyalty. 
  • Especially now, services should incorporate new technology and the internet to stay ahead or at least at par with competitors.

Service Innovation Explained

Service innovation ideas are of huge significance in the services industry. How to offer better services to customers? What can keep them loyal? Innovative services are the answer. Customers, especially in this digital era, want to keep everything simple. One-touch payments are an apt example of this. As a result, the share of innovators and early adopters is increasing quickly. 

Services are no more seen as merely complementing products. Increasingly, people consume more services than products – data, internet, food delivery, entertainment, etc. As a result, companies that bring more and more innovations to the field have a higher success rate. Hence, the importance of consumer service innovation for any company.

Besides, innovation can help propel the economy. It sets the new norm, which is often cheaper and easier. For example, consider the financial service innovation from online banking to e-wallets to one-touch and no-contact payments. 

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Here are the main types of service innovations classified based on their nature:

#1 – Degree Of Change

An organization might have existing service offerings in its basket. When it introduces a new service, the extent to which it differs from its earlier service category can be either radical or incremental. An incremental innovation can be an extension of the earlier ones. It can be an addition to a few features. Radical innovation means an entirely new service that has no association with what the company previously offered.

Example: Amazon entering the entertainment industry from e-commerce was a radical change back then.

Type of change Innovations can be made in the service, process, organization, or marketing function. This shows that innovation doesn’t have to be external or always has to reach the customer visibly. For example, an innovation in itself is an organizational process that brings intelligent and experienced minds into its think tank leading to service innovation. Thus, the point of change is important.

Example: AR-VR calibrated websites to present customers with an innovative marketing experience.

#2 – Newness

This is probably an easily digestible classification – how new the product is to the firm or the market. Innovation, in its most common sense, means something new. The change can exist in the market, but the firm only adapted to it recently, or it can be the never-before-seen kind. The former isn’t good as it makes customers feel left out and leads to the firm losing them, whereas the latter is good and can lead to heightened customer loyalty and acquisition

Example: Cryptocurrencies, when first introduced, were a disruptive innovation.

#3 – Means Of Provision

The provision of an offering refers to the channel through which it reaches the customers. Based on this, the service can be an e-innovation or a p-innovation. The former uses the internet as its medium. It is most apt in this digital era, and more and more services will take this route in the future too. On the other hand, p-innovation uses human interaction as its medium. Though a little outdated, it would sometimes become inevitable. 

Example: During COVID-19 lockdowns, online customer service became prominent, where technicians offered support through video calls and videos. This is an e-innovation.


Let’s take the help of some examples to understand service innovation ideas.

Example #1

Suppose BookXYZ is a book retailer. They have always managed to keep up with the new market trends – e-books, audiobooks, etc. Recently, they launched a VR platform where customers can experience the story in real-life using the headset. The company started by introducing classics and bestsellers. This innovation was the first of its kind in the market and attracted a lot of customers.

Example #2

Check out this example for financial service innovation with the 2022 ISG Provider Lens Digital Banking Services report for Switzerland. According to the report, Swiss banks want to introduce major digital transformations as the competition gets tough. Multinational corporate giants like Google, Apple, Amazon, etc., offer innovative banking services, online payments, investments, and innovative lending, all of which attract customers, especially the young, who prefer ease. 

The report evaluated 27 service providers across four parameters –

(i) core modernization and integration services

(ii) technology transformational services for digital banking

(iii) banking governance, risk, and compliance services

(iv) payment and card processing services.


These are the main benefits of service innovation:

  • The profit of any firm depends on the level of satisfaction its customers or clients experience. 
  • Satisfaction of existing customers brings in new customers to the firm and ensures their loyalty. This increases the firm’s market share
  • More customers equate to higher revenue and higher profits
  • Increased cash inflow implies that businesses can spend more on research and development, thus generating more innovations. 
  • It can help a business set itself apart from its competitors and become the market leader.
  • Besides, innovation can help reduce wastage and costs within an organization.
  • Also, an innovative environment keeps the employees active and stimulated, thus providing the thinking ground for more ideas.

Difference Between Product Innovation And Service Innovation

Let’s understand the distinction between service and product innovation.

  • Product innovation is a tangible feature. It is any physical improvement that enhances the functionality or appearance of a product. Likewise, innovative services are intangible, thus enhancing service offerings.
  • Service innovation is important for service-based and product-based companies, whereas product innovation is important for product-based companies and often not applicable for service-based firms.
  • Generally, product innovation is considered more expensive. This is due to the raw material cost, manufacturing, design, research, and development expenditure involved. 

Consequently, the risk involved in product innovation is relatively higher than in service innovation. This is because it does not involve a simple algorithmic change or modifications in human interactions.

Frequently Asked Questions (FAQs)

When can a service innovation be patented?

An innovative service can be patented under the utility patent prescribed by United States law. For this, it must be obvious that the innovation alters existing processes or services. Protection under the patent rights can be exercised for a limited time only, usually 20 years. 

Why is service innovation important?

Innovation of any kind is important as it is a significant step forward. Without innovation, all businesses and processes would be stagnant. Innovative services help businesses have the edge over their competitors and, thus, gain a higher market share. This leads to higher profits and a loyal customer base.

What are the stages of product and service innovation?

According to the Harvard Division of Continuing Education, innovation has four important stages. First, the company needs to look for problems and opportunities. For example, they should identify any supply-demand gap in the market. Secondly, they should brainstorm innovative ideas to fill the gap or solve the problem. The third step is to make a prototype or a service model to understand its efficacy. Lastly, the company can introduce it to the market and keep making improvements.

This has been a guide to what is Service Innovation. We explain it with its examples, types, benefits, and comparison with product innovation. You can learn more about from the following articles –

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