Question

Why are services called ‘intangible products'? Give any two reasons.

Hint:

To remember the core characteristics of services, use the standard IHIP framework:
$\text{\textbf{I}ntangibility} \quad \text{\textbf{H}eterogeneity} \quad \text{\textbf{I}nseparability} \quad \text{\textbf{P}erishability}$
Because services are intangible and perishable, cost accountants must use specialized units of measurement, such as Composite Cost Units (e.g., Room-Days for hotels, Passenger-Kilometers for transport).

Answer 1

Step 1: Understanding Service Characteristics:
In economics and service marketing, products are divided into tangible goods (physical items) and intangible services (activities, benefits, or satisfaction offered for sale). Services are classified as intangible products because they lack physical form, meaning they cannot be perceived by the five senses before purchase. This intangibility introduces unique challenges for service costing.

Step 2: Two Key Reasons for Service Intangibility:
[leftmargin=*]
• Absence of Physical and Tactile Material Substance: Unlike physical goods (such as a vehicle or an electronic device), services have no physical, chemical, or aesthetic dimensions. A customer buying a service, such as a medical consultation, a legal defense, or an airline flight, cannot see, touch, hear, or taste the product beforehand. The value of a service lies in the activity performed, not in a physical item.
• Simultaneous Production and Consumption (Inseparability): Physical goods are manufactured in a factory, stored in a warehouse, sold to retailers, and consumed later. Services, however, are created, delivered, and consumed at the same time. For example, a haircut or a live lecture is produced by the service provider while being consumed by the customer. Because services cannot be stored or inventoried, they are highly perishable; any unused capacity (such as an empty hotel room or an unsold airline seat) is lost forever.