Goods versus Services: Why Buyers and Sellers DisagreeRelevant topics Archive, Strategy
Suppose you want to sell a cupboard; how do you determine the price? You will probably compare prices with similar ones and how much the purchase price was. Buyers, in turn, will judge it on external features: how many drawers are there, what material is it made of? Yet often there is a difference in what the seller thinks a product is worth and what the buyer is willing to pay. This is also called the endowment effect (Thaler, 1980).
However, society is becoming increasingly technological, and more (digital) services are offered. Think, for example, of a platform like Amazon, a company specializing in data privacy, or the experience of going to a concert. How are these services evaluated? And more importantly, how big is the seller-buyer gap? Let’s dive in!
Physical Distance Leads to Mental Distance
First of all, a meta-analysis by Nguyen and Wang (2023) has shown that services are, compared to goods, valued more by sellers than buyers are willing to pay. They argue that this is because buyers are less able to evaluate a service because it is intangible. Moreover, this effect was larger for services related to digital privacy than for services related to experiences. Thus, in general, the following applies: the less tangible the service is, the greater the seller-buyer gap.
Moreover, this effect can also be explained psychologically. After all, people can easily imagine what it is like to own a product. Just touching the good can cause someone to form a positive association with the product. Often people overestimate the positive association they have with the product. Ultimately, this can cause people to get more into a buying mindset. A service, on the other hand, we are less able to imagine because it is literally psychologically/mentally further away from us. So physical distance also leads to mental distance, which is also known as cognitive embodiment. This leads buyers to have more difficulty processing information from the product. The question that remains is: How can you reduce this mental distance?
Bridging the Seller-Buyer Gap
There are several ways to close this gap using neuromarketing. However, the goal is not to bring the difference between sellers and buyers to zero. In fact, it is good to have some resistance because it makes buyers think more about the actual value of the service (Tan & Salo, 2021).
The overarching idea is that services are primarily about the emotions buyers experience and how a product mirrors one's identity with the service or brand. Marketers should, therefore, focus on these characteristics of the service. It can also work well in this regard when highlighting a new service to use influencers that people are familiar with. This will make the service a bit more understandable and thus mentally closer.
Finally, it also works when messages are framed in a way that a buyer empathizes more with a seller. A good example is the following: people are not willing to pay much money to protect their data. However, when asked how much money it is worth for someone else to be allowed to see their data, they feel it is worth much more. By framing the message so that the focus is on the loss, namely being hacked, the buyer will be more likely to protect themselves and see the value of the service.
In sum, don’t underestimate the degree to which the valuation of goods and services differ. As a marketer, also consider promoting goods through specific product features and promoting services by going into the experience of the service. You can also use strategies such as framing. In this way, you have all the tools you need to reduce the seller-buyer gap!
Take home points
- People generally think the goods they sell are of more value than what they would pay for it. This creates a seller-buyer gap.
- When you offer services, keep in mind that there is a big gap between what a seller charges vs. what a buyer is willing to pay.
- Use different marketing strategies for goods vs. services. For selling goods, focus more on product-specific details. For selling services, consider focusing more on how the service mirrors one’s identity or the emotions people experience.
- In addition, marketers should use different marketing strategies for promoting their services. For example, through the content creators or framing the message.
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