Intangibility in Services Marketing

The journey to establish services marketing as a legitimate field within marketing began slowly, with recognition only emerging in 1970 and the first international conference occurring in 1982. Initially, many believed services marketing was not fundamentally distinct from goods marketing, but subsequent research has highlighted four key differences: intangibility, inseparability, heterogeneity, and perishability. These characteristics have since become central to understanding the unique challenges and strategies involved in marketing services effectively.

Services are intangible, experienced rather than seen or touched, leading to subjective consumer judgments. Inseparability means services are produced and consumed simultaneously, unlike goods which are produced, sold, and then consumed. Heterogeneity stems from the variability inherent in service production by people, posing challenges for consistency. Perishability, where services cannot be saved or inventoried, creates supply-demand balance challenges. Despite these complexities, services marketing has emerged as a dominant force, with scholars emphasizing the primacy of delivering service over goods.

Intangibility distinguishes services from goods, as services are defined by performances while goods are tangible objects. This difference means services cannot be evaluated in the same objective manner as tangible goods, which can be examined for quality and physically possessed after purchase

Marketing Challenges Created by Intangibility:

1. Lack of Service Inventories: Services cannot be inventoried due to their intangible nature. This leads to constant supply-demand imbalances, as services cannot be stored as buffers against high demand periods. For instance, medical examinations, movie seats, and roadside services cannot be stored for future use, resulting in customer wait times and limited service availability.
2. Services Lack Patent Protection: Services, being intangible, cannot be patented like tangible goods. Consequently, new or existing services can be easily replicated, posing a challenge in maintaining a competitive advantage. Despite firms advertising patented processes, only tangible machinery involved in the process can be protected, not the process itself.
3. Services Are Difficult to Display and/or Communicate: The intangible nature of services presents challenges in promoting and communicating their attributes. Customers cannot physically experience or sample services before purchase, making it challenging to convey their value. For example, explaining the merits of insurance, which often seems costly and intangible, poses communication difficulties due to its intangible nature.
4. Services Are Difficult to Price: Unlike tangible products, the pricing of services is complex due to their intangibility. Traditional cost-plus pricing models, based on tangible goods, are not applicable to services. Pricing primarily revolves around labor costs, making it challenging to determine a fair value for services.

Possible Solutions to Challenges Caused by Intangibility:

Utilize Tangible Clues:

• Tangible clues are utilized to provide physical evidence or cues that assist consumers in evaluating intangible services.
• Examples include the quality of furniture in an office or the appearance of personnel, which help convey service quality.
• Marketers often incorporate tangible clues in advertising campaigns to make abstract services more understandable to consumers.

Utilize Personal Sources of Information:

• Consumers heavily rely on personal sources such as friends, family, and opinion leaders for service evaluations due to the lack of objective criteria.
• Word-of-mouth communication plays a significant role, and firms often incentivize customers to spread positive experiences to their network.
• Mass media advertising featuring customer testimonials simulates word-of-mouth advertising and enhances credibility.

Create a Strong Organizational Image:

• Developing a strong organizational image helps mitigate the perceived risk associated with intangible service purchases.
• A well-established corporate image reduces reliance on personal referrals and fosters trust among potential customers.
• Organizational image is often shaped through positioning strategies emphasizing factors like leadership, innovation, and sustainability.

Utilize Activity-based Costing:

• Activity-based costing (ABC) provides a more accurate understanding of cost structures in service organizations.
• ABC identifies and allocates costs based on activities and tasks, reflecting the resources consumed in delivering services.
• By breaking down overhead costs into specific activities, ABC allows for better resource allocation and cost management.

 Key Terms: 

 Intangibility: Refers to the characteristic of services that makes them difficult to perceive and evaluate before consumption. Unlike physical products, services lack physical substance, making it challenging for customers to assess their quality and attributes prior to purchase.

Physical Evidence/Tangible Clues: These are the tangible elements associated with a service that provide visual or sensory cues to customers about the quality and nature of the service being offered. Physical evidence can include facilities, equipment, and other visible elements that contribute to the customer's perception of the service.

Personal Sources of Information: Refers to information obtained from interpersonal interactions, such as recommendations from friends, family, or acquaintances. Personal sources play a significant role in influencing consumer decisions, particularly for services where trust and personal relationships are important factors.

Activity-Based Costing (ABC): A cost accounting method that assigns costs to activities based on their consumption of resources. ABC helps businesses understand the costs associated with specific activities or services, enabling more accurate pricing and resource allocation decisions.

References: 

Hoffman, K. D., & Bateson, J. E. (1997). Essentials of services marketing. (No Title).