The tertiary industry—commonly called the service sector—is the part of the economy that provides services rather than producing physical goods. It includes activities such as banking, education, healthcare, hospitality, transportation, personal services (haircuts, fitness, pet care), and many professional and public services. As economies develop they typically shift employment and output away from primary (raw materials) and secondary (manufacturing) activities toward the tertiary sector.[Investopedia]
Key takeaways
– The tertiary industry = the service sector (services, not goods).
– It includes for‑profit firms (banks, hotels, restaurants) and nonprofit/public services (public education, healthcare).
– Services are intangible, which makes pricing and quality assessment more complicated than for goods.
– Rapid technological and knowledge‑based services are sometimes classified separately as the quaternary sector.
– Advanced economies tend to have the largest share of output and employment in tertiary services.[Investopedia; World Bank]
Understanding the tertiary industry
– Scope: Covers activities whose main output is a service or facilitation of operations—examples: financial services, insurance, retail and wholesale trade, public administration, education, healthcare, transportation, accommodation, and food service.
– Two broad categories:
1) Commercial services that generate revenue (banks, hotels, telecom operators).
2) Nonprofit and government services (public schooling, public health, municipal services).
– Role in economic development: As countries industrialize, employment and GDP contributions shift from agriculture (primary) to manufacturing (secondary) and then to services (tertiary). In very advanced economies the service share of GDP and employment often dominates.
Important characteristics
– Intangibility: Services cannot be stored or physically inspected beforehand; perceived quality often depends on the provider.
– Heterogeneity: Service quality can vary by provider, time, and customer interaction.
– Inseparability: Production and consumption often occur simultaneously (e.g., a haircut, a medical consultation).
– Perishability: Unsold service capacity (empty hotel rooms, unfilled flight seats) often represents lost revenue.
These characteristics drive the sector’s different pricing, marketing, and quality‑control needs versus goods.
Examples of tertiary industry organizations
– Financial institutions: banks, investment brokers, insurance companies.
– Health and social services: hospitals, clinics, eldercare, veterinary clinics.
– Education: public schools, universities, private training.
– Transport and logistics: airlines, railroads, trucking, public transit.
– Hospitality and food service: hotels, restaurants, cafes.
– Personal services: salons, gyms, cleaning services, pet grooming.
– Public administration and safety: municipal services, policing, fire departments.
(Adapted from Investopedia’s tertiary industry definition.)
Pricing challenges in the tertiary industry
Because services are intangible and variable, pricing them is more complex than pricing physical goods. Typical challenges:
– Valuation: Determining the value of a service can be subjective—customers may compare on reputation, outcomes, or perceived convenience.
– Differentiation: Two providers may offer “the same” service but deliver different levels of quality or experience.
– Capacity utilization: Services with fixed time slots (consultations, flights) must balance supply and demand to maximize revenue.
– Bundling and outcome pricing: Some firms use bundled packages, subscription models, or result‑based pricing to align price with perceived value.
Best practices for pricing services: cost‑plus plus perceived value, tiered packages, dynamic pricing for perishable capacity, and transparent outcome metrics.
Transition from tertiary to quaternary
– Quaternary sector: A subcategory that focuses on knowledge‑based services—research and development, information technology, data analytics, high‑value consulting, telecommunications and internet services.
– Why the split: As technology and data became core drivers of value, many high‑skill service activities were separated to highlight their distinct economic role (the “knowledge economy”).
– How businesses transition: invest in human capital, digital platforms, IP and data infrastructure, and offerings that monetize knowledge rather than routine tasks.
Who has the highest output of tertiary services?
According to World Bank data (services value added, 2020), the largest contributors to global tertiary output are the world’s largest economies—countries such as the United States, China, Japan, Germany, India and other advanced economies lead in services value added.[World Bank, “Services, Value Added”, accessed Jan. 7, 2022] (Note: country rankings change year to year depending on growth rates and exchange rate movements; consult the World Bank’s online database or national accounts for the most recent figures.)
Practical steps — for businesses, policymakers, and professionals
A. For service businesses (small and large)
1. Define and measure service quality: set objective KPIs (NPS, repeat customer rate, resolution time, outcome measures).
2. Price strategically: use value‑based pricing, tiered service levels, subscriptions, and dynamic pricing for perishable capacity.
3. Invest in workforce skills: train employees for consistent delivery, customer experience, and upselling where appropriate.
4. Use technology to scale: automate routine tasks (chatbots, scheduling), use CRM systems for personalization, and deploy analytics to understand customer behavior.
5. Protect and leverage knowledge: document processes, capture IP, and create knowledge assets that can be monetized (courses, SaaS, consulting).
6. Manage capacity: forecast demand, use yield management (hotels, airlines), and offer off‑peak incentives.
B. For policymakers and planners
1. Develop human capital: fund higher education, vocational training, and lifelong learning programs targeted at service‑sector skills (IT, healthcare, finance, hospitality).
2. Upgrade digital infrastructure: broadband, data centers, and regulatory frameworks that encourage digital services and telecommuting.
3. Encourage entrepreneurship: simplify business registration, provide incubators for service startups, and offer targeted finance for high‑value service firms.
4. Foster trade in services: negotiate market access, recognize professional qualifications, and support digital cross‑border service delivery.
5. Measure the sector accurately: improve national accounts and service‑sector statistics to guide policy.
C. For students and professionals entering the sector
1. Build transferable skills: communication, problem solving, digital literacy, and customer service.
2. Specialize where it adds value: consider niches in data analytics, healthcare administration, fintech, cybersecurity, or UX design.
3. Gain experience with measurable outcomes: internships or projects where results can be shown (revenue impact, efficiency gains, customer satisfaction).
4. Keep learning: services evolve quickly—pursue certifications and micro‑credentials.
Measuring and reporting tertiary output
– Common metric: “services, value added” (part of GDP accounted for by services). The World Bank and national statistical agencies publish time series of services value added and employment shares.
– Firm metrics: revenue per employee, utilization rates, customer lifetime value, churn, and margin by service line.
Further reading and data sources
– Investopedia: definition and overview of tertiary industry (source material summarized here).
– World Bank, “Services, Value Added” (for country rankings and time‑series data). Check the World Bank’s databank for the most current figures.
Summary
The tertiary industry is the backbone of modern developed economies: service‑oriented, people‑centric, and increasingly knowledge‑driven. Its intangibility and heterogeneity require different approaches to pricing, quality control, workforce development, and digitization. Businesses that measure service outcomes, leverage technology, and invest in human capital are best positioned to succeed; policymakers who prioritize skills, digital infrastructure, and supportive regulation increase the sector’s contribution to growth.
Sources
– Investopedia, “Tertiary Industry” (definition and sector overview).
– World Bank, “Services, Value Added” (country‑level services output, 2020; accessed Jan. 7, 2022).