Exploring How Intangibility Affects Perceived Risk
By: Michele Laroche, Gordon H.G. McDougall, Jasmin Bergeron, and Zhiyong Yang
Laroche, Michel, Gordon H.G. McDougall, Jasmin Bergeron, and Zhiyong Yang (2004),
“Exploring How Intangibility Affects Perceived Risk,” Journal of Service Research, 6(4), 373–
389. https://doi.org/10.1177/1094670503262955
***© 2004 Sage Publications. Reprinted with permission. No further reproduction is
authorized without written permission from SAGE. This version of the document is not the
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Abstract:
Studies have found that product intangibility increases consumers’ perception of risk. However,
most of these studies measured the intangibility and perceived risk constructs unidimensionally.
The primary objective of this article is to examine the effects of the multiple dimensions of
intangibility on the various types of risk. An empirical investigation revealed that, of the three
intangibility dimensions, physical intangibility was the least correlated to the consumers’
perception of risk in most situations, whereas mental intangibility and generality had a great
impact on most dimensions of perceived risk. However, there were variations in the strength of
the relationships between the intangibility dimensions and the risk dimensions when contrasting
goods and services, generic products and brands, and online and offline purchase contexts.
Theoretical and practical contributions to the service marketing literature are discussed.
Keywords: intangibility | perceived risk | services marketing | structural equation modeling
Article:
Two central concepts in marketing are intangibility and perceived risk. Both influence consumer
decision making and marketing strategy. Intangibility, the major characteristic that distinguishes
goods from services, affects the consumer’s ability to judge the quality of the good/service. The
more intangible a product is, the more difficult its evaluation will be (Zeithaml 1981). Perceived
risk, the uncertainty and consequences of the decision, affects the extent of search and
information sought (Bauer 1960). In response, marketing strategies include branding (to increase
tangibility) and guarantees (to reduce risk), and a host of other initiatives have been implemented
to influence consumer behavior.
Intangibility is one of the main influences on perceived risk. As intangibility increases, so does
perceived risk (Murray and Schlacter 1990). Typically, intangibility has been defined as the lack
of physical evidence (McDougall 1987). Recent research empirically examined the conceptual
definition of intangibility and found that it was composed of three distinct dimensions: physical
intangibility, generality, and mental intangibility (Laroche, Bergeron, and Goutaland 2001).
Perceived risk has multiple dimensions as well, including social, financial, physical,
psychological, time, and performance risks (Stone and Gronhaug 1993).
The major objective of this article is to investigate the impact of the three intangibility
dimensions on five dimensions of perceived risk across different product categories and brands
for both goods and services (Figure 1).
Figure 1. The Intangibility–Perceived Risk Model
A second objective of this research is to compare the relationship between intangibility and
perceived risk in the online versus the offline environments. With the advent of the Internet, new
forms of goods and services and delivery channels have appeared. For example, music and
banking services can be directly delivered in a digital, nonphysical format by a firm that has no
physical presence. Traditionally, these forms and channels are believed to be more intangible and
increase perceived risk. However, recent studies show that the Internet, despite being a fairly
intangible medium, is currently used as a means of tangibilizing the intangible (Berthon et al.
1999). Some researchers attribute this phenomenon to the powerful function of the Internet in
easily providing consumers with appropriate information and in lessening the efforts needed in
making purchase decisions (Thakor, Borsuk-Shtevi, and Kalamas forthcoming). Therefore,
identifying the degree to which the online versus the offline environments may increase or
decrease intangibility and perceived risk can provide insights to marketing managers involved in
the online environments.
It is hoped the article will make the following contributions to the marketing field. First, the
present study extends the understanding of intangibility and perceived risk in three ways: (a) by
using multiple dimensions for both intangibility and perceived risk; (b) by direct modeling of
intangibility and perceived risk to identify the relationships between the individual dimensions of
intangibility and those of perceived risk; and (c) by testing these relationships across goods,
services, brands, generic products, and purchase situations to increase the generalizability of the
results. The study will extend the understanding of the relationship between intangibility and
perceived risk beyond the general statement that increased intangibility leads to increased
perceived risk. Second, the study offers managerial implications to address the situations where
intangibility and perceived risk are most likely to occur. Globally, it is hoped that this
investigation will provide both theoretical and practical contributions to understanding the
impact of intangibility on perceived risk.
LITERATURE REVIEW
Intangibility
Intangibility has been defined as “impalpable” and “not corporeal” (Shostack 1977); “that which
cannot be easily defined, formulated or grasped mentally” (Berry 1980); and “the lack of
physical evidence” (McDougall 1987). According to the Oxford Dictionary of Current English
(1996), intangibility is (a) that which cannot be touched or seen, (b) that which is difficult to
define or describe clearly, and (c) that which cannot be easily grasped mentally. Prior research
has tended to view intangibility as a single dimension related to the lack of physical evidence
(Bebko 2000; Finn 1985) or a two-dimensional construct related to the lack of physical evidence
and generality—how general or specific a consumer perceives a particular good or service
(Breivik, Troye, and Olsson 1998).
Recent research suggests the intangibility construct encompasses three dimensions: physical
intangibility, generality, and mental intangibility (Laroche, Bergeron, and Goutaland 2001). The
physical dimension represents the extent to which a good cannot be touched or seen; it is
inaccessible to the senses and lacks a physical presence. The generality dimension refers to the
customer’s difficulty in precisely defining or describing a particular good. Flipo (1988) argued
that the word tangible is often used as a synonym of precise. Making a tangible promise, for
instance, implies saying precisely what one commits oneself to do. Goods can be perceived as
general if consumers cannot refer precisely to identifiable definitions, features, and/or outcomes
(e.g., a car is a complex vehicle that one uses to get from Point A to Point B) (Laroche,
Bergeron, and Goutaland 2001). Inversely, goods are perceived as specific if they generate
numerous clear-cut definitions, features, and/or outcomes in the consumer’s mind (e.g., a car is
an intricate machine; made of aluminum alloy; powered by an internal-combustion engine; with
numerous features such as antilock braking systems, dual-side air bags, immobilizer theft-
deterrent devices, air conditioning, etc.).
Mental intangibility reflects the fact that a good can be physically tangible, but difficult to grasp
mentally. According to McDougall and Snetsinger (1990), physical tangibility does not ensure a
clear, mentally tangible representation of an object, especially if the evaluator lacks experience
with that object. For example, a car engine is probably mentally intangible for most people, that
is, for those who do not have sufficient knowledge to appreciate its mechanics. The three-
dimensional intangibility scale will be used in this study.
Perceived Risk
Perceived risk is an important construct in the social sciences with a rich and varied history of
research (Campbell and Goodstein 2001). Bauer (1960) introduced the idea that consumer
behavior be considered as an instance of risk-taking and risk-reducing behavior. The extensive
research on perceived risk (see Dowling 1999; Dowling and Staelin 1994; Mitchell 1999 for
reviews) has shown that consumers’ perceptions of risk are central to their evaluations and
purchasing behaviors (Dowling 1999).
Perceived risk has two components: uncertainty (the likelihood of unfavorable outcomes) and
consequences (the importance of a loss) (Bauer 1960). Different types of risk exist, namely,
financial, performance, time, physical, psychological, and social risks (Havlena and DeSarbo
1990; Jacoby and Kaplan 1972; Murray and Schlacter 1990), and the importance of each varies
across product categories (Jacoby and Kaplan 1972; Kaplan, Szybillo, and Jacoby 1974). That is,
the perceived risk for two different product purchases may both be high, but in one case—for
example, a computer—performance and financial risks are high, whereas the remaining risks
may be low. In the next case—for example, an Internet browser—the time and performance risks
are high. The point is that the dimensions of risk are very product specific and can be
independent of each other.
Here, perceived risk is viewed as a subjective expectation of loss (Mitchell and Greatorex 1993;
Peter and Ryan 1976). Briefly, social risk can be defined as the potential loss of esteem, respect,
and/or friendship offered to the consumer by other individuals (Murray and Schlacter 1990) and
is more likely to occur with services because of the service encounter (Mitchell and Greatorex
1993; Murray and Schlacter 1990). Time risk is the potential loss of time and effort associated
with purchasing the item (Murray and Schlacter 1990). Psychological risk is the potential loss of
self-image or self-concept as the result of the item purchase (Murray and Schlacter 1990).
Financial risk is the potential loss of money associated with the item purchase, and performance
risk is the potential loss due to item failure after purchase.
It is important to understand how each of the risk dimensions contributes to overall risk both
from theoretical and practical viewpoints. From a theoretical viewpoint, the risk dimensions will
affect the type of information sought, the information sources used, and the length of time in the
decision process. From a practical viewpoint, the marketing strategies used to reduce risk will be
far more effective if the contributions of each of the risk dimensions to overall risk is well
understood.
Perceived risk also varies across methods of shopping. Nontraditional shopping may have higher
risk than traditional shopping (Gillett 1976), and buying by phone or mail may be more risky
than buying in retail stores (Cox and Rich 1964; Spence, Engel, and Blackwell 1970). Bobbitt
and Dabholkar (2001) proposed that some types of risk, such as financial, psychological, and
performance risks are more applicable to shopping on the Internet than other nontraditional or
traditional shopping methods. For example, in terms of financial risk, consumers may fear that
the company that they “know” only through the Internet may misuse their credit cards.
Psychological risk may occur because Web sites can capture personal information, and there is
some psychological risk associated with not knowing the entity from which you are buying.
Performance risk may occur when consumers purchase a good through the Internet but do not
receive the good that was advertised. A five-dimensional perceived risk scale will be used in this
study.
Intangibility and Perceived Risk
Research has shown that intangibility is positively correlated with perceived risk (De Ruyter,
Wetzels, and Kleijnen 2001; Finn 1985; McDougall and Snetsinger 1990; Mitchell and
Greatorex 1993; Murray and Schlacter 1990; Zeithaml and Bitner 2000). The lack of information
available in making services versus goods decisions increases the risk (Bebko 2000). Also,
services tend to be perceived as riskier to purchase than goods (McDougall and Snetsinger 1990;
Mitchell and Greatorex 1993; Murray and Schlacter 1990). The properties of services—that is,
heterogeneity, perishability, inseparability, and intangibility—may lower consumer confidence
and increase perceived risk, mainly by augmenting the degree of uncertainty in the decision
(Mitchell 1999).
A review of the literature found no studies that related the dimensions of intangibility to the
dimensions of perceived risk. This is not surprising given the recent development of the three-
dimensional intangibility scale (Laroche, Bergeron, and Goutaland 2001). The implication is that
there is little direct empirical or theoretical work to hypothesize the relationships that might exist
between the dimensions of intangibility and perceived risk. The hypotheses, presented below,
should be regarded as exploratory in nature.
HYPOTHESES
While intangibility is generally related to perceived risk, the relationships between the three
dimensions of intangibility and the five dimensions of perceived risk have not been tested. Given
the exploratory nature and objectives of this research, the major hypothesis is a test of the overall
intangibility–perceived risk model (Figure 1).
Hypothesis 1: The three dimensions of intangibility will be significantly related to the
five dimensions of perceived risk.
Branding has been used as a risk-reducing strategy and is often recommended for services, where
higher risk exists (Berry 2000). Both theory and empirical evidence support the concept that
brands, as opposed to generic products, should have lower risk (Mitchell and Greatorex 1993;
Roselius 1971). For example, consumers may feel there is a great deal of risk associated with the
generic product class; however, they may buy their favorite brand with confidence (Dowling and
Staelin 1994). Dowling and Staelin referred to this distinction as product-category and product-
specific risks. In a comparison of the relationships between intangibility dimensions and
perceived-risk dimensions for generic products versus brands, the generic product model should
provide a stronger relationship (i.e., higher standardized coefficients) than the brand model.
