Barry E. Langford is an Associate Professor of Marketing in the Marketing Department, College of Business, Florida Gulf Coast University. He was formerly the Vice-President of Marketing of a property and liability insurance group, President of another insurer, and Vice-President of two international investment bankers. He received his Doctor of Business Administration (DBA) from Mississippi State University. Dr. Langford has recently authored articles in the Journal of Applied Business Research, Technological Forecasting and Social Change, Journal of Insurance Issues, Business Quest, and Marketing Research.

Robert M. Cosenza is currently a consultant with Creative Marketing Solutions, Douglasville, Georgia. He has authored three textbooks and several articles.

Researchers are demonstrating substantial differences between services marketing and goods marketing, but such research is moving too slowly. As a result, substantial changes or improvements in services-marketing strategy also tend to occur slowly. This manuscript offers as an example of how a service product can be analyzed, using knowledge of the product and applicable marketing literature, to determine which of a service product's marketing characteristics are more like a good than a service.

It is suggested that Service-Good Analysis allows researchers and strategists to more effectively use secondary research on both goods and services in developing projects and tasks, even for service products that are considered pure services. It is also suggested that conducting Service-Good Analysis before conducting primary research facilitates better focused services marketing research, and thereby saving researchers valuable resources as well as speeding the discovery process.

This article first describes the Service-Good Analysis model, and when and why it should be used, followed by a detailed analysis of a traditional pure-service product -- the private passenger automobile policy -- as an example of the model's use and applicability to services marketing research. Managerial applications of this type of analysis are also presented.

Researchers and marketers generally agree that the marketing of services involves considerations and tasks that are different than those involved in the marketing of tangible products (See for example, Berry & Parasuraman, 1993, and Fisk, Brown and Bitner, 1993). Wilson (1972, p.8) suggests that "the more intangible the service, the greater will be the difference in the marketing characteristics of the service." Further, Shostack (1987) suggests that all positioning strategies revolve around the product itself. Finally, Zeithaml, Parasuraman, and Berry (1985) also asserts that services marketing requires a different management approach.

While researchers are finding differences between services marketing and goods marketing, the results are often inconclusive and conflicting. As a result, substantial changes or improvements in services-marketing strategy occur slowly. The problem may stem from improper or weak definition of the service prior to the creation of research and strategy projects. We believe the performance of Service/Good Analysis prior to designing marketing research and strategy will improve the definition of a service's specific characteristics and thereby improve the research focus.

In an attempt to clarify the above issues, the authors first describe the Service/Good Analysis process, then conclude with a detailed example of how a pure-service product can be analyzed to determine which of a service's marketing characteristics are more like a good than a service. The results of the analysis are used to focus research efforts (or strategy formulations) on specific service-like characteristics of the product. The results also promote a more effective use of secondary research on both goods and services in developing projects and tasks, even for pure services.

The problem centers on the fact that services marketing research is still a relatively new and undeveloped base of knowledge compared to that for goods (See for example, Berry, Parasuraman, and Zeithaml, 1993, Grove and Fisk, 1992). This fact implies that the identification of marketing-related similarities between a specific service product and tangible goods can facilitate the use of some of the larger body of existing, tangible-goods research in service-industry marketing research design and implementation, as well as in marketing strategy formulations. The approach is to determine the extent that each of the service's elements are more like a tangible product (a good) or an intangible service (a service).

As we identify specific characteristics of services that are more like those of goods than the accepted definitions of services, we can use existing theories, research methods, and marketing strategies, which were developed primarily in the tangible products arena, in the design and implementation of marketing research and strategy projects of service firms. Thus, it becomes unnecessary for service marketers/researchers to rely as heavily on less established services-marketing research and strategies. Further, we can concentrate our services research efforts on specific characteristics of products that least resemble those of goods.

The Service/Good Analysis process is illustrated in Figure 1. Since it is the bundle of benefits that customers buy, we must first determine a list of those benefits as consumers perceive them. We then determine which specific characteristics (or elements} of the service provide each of the identified benefits. The identified benefits are then classified as either primarily Service Elements or Goods Elements per the accepted definitions inherent in the continuums shown in Figure 2. Figure 2 corresponds with the four accepted differences between services and goods shown in Figure 1--services are intangible, inseparable from production, heterogenous, and perishable, where goods are quite the opposite. Figure 2 also shows which of the four services criteria relate most heavily to each continuum based upon the authors' definitions. 

SERVICES----------------------------------------GOODS 

Service Dominant--------------------Good Dominant

[Rathmell (1966) (a general classification)]

Intangible Dominant-------------Tangible Dominant

[Shostack (1977) "Scale of Market Entities" (tangibility)]

High Experience Low Experience

Qualities---------------------------------------Qualities 

(heterogeneity/inseparability)

High Credence Low Credence

Qualities--------------------------------------Qualities 

(tangibility)

[Zeithaml (1981) "Continuum of Evaluation for Different Types of Products"]

Low Search High Search

Qualities--------------------------------------Qualities 

[ Zeithaml, Parasuraman & Berry (1985) (tangibility/inseparability)]

High Divergence---------------------Low Divergence

(High Differentiation) (Low Differentiation)

[ Shostack (1987) (heterogeneity)]

Low Storability-----------------------High Storability 

(PERISHABILITY)

The return arrows in the Service/Good Analysis Process also show that marketing strategy is actually a set of plans to be applied to each of the Service and Goods Elements to adjust or maintain each related benefit. By making adjustments to each of the provided benefits, marketers adjust the bundle of benefits offered by the service product.

Brief Product/Industry Description

Private passenger automobile insurers provide their customers, called insureds, with insurance protection for potential monetary losses which can occur from the ownership or operation of an automobile. The basic coverages (categories of protection) are classified as bodily injury and property damage liability, medical payment, uninsured and underinsured motorist, collision, and damage other than collision (formerly called comprehensive physical damage). 

Insurers also provide another coverage called personal injury protection (PIP) in the most states, Puerto Rico, and the District of Columbia that have no-fault laws. However, since this coverage is a rearrangement of some of the above coverages, it will not be included as an additional category of protection in this paper. Thus, PIP is not discussed further.

All of these coverages are provided in a single private passenger automobile insurance policy called the Personal Automobile Policy (PAP), which is "...the coverage form now most commonly in use" (Wood, Lilly III, Malecki, Graves, and Rosenbloom, 1989, p. 65). Private passenger automobile insurance was chosen for ease of understanding and since the PAP is the single largest form of property and liability insurance, generating $100 billion in premiums (gross sales) in the United States annually.

The PAP Marketing Problem

The authors' review of the PAP literature from the past thirty years clearly shows that little is known empirically about the variables involved in insureds' shopping- or buying-decision processes with respect to the PAP. While practitioners and researchers presume that some decision variables involve attitudes toward agent and insurer service performances, researchers have not developed reliable and valid measures of service for PAP insurers and agents. Furthermore, PAP marketing research has not progressed beyond the use of qualitative focus groups and univariate investigations of proportions of insureds who report on small, selected sets of their shopping activities or feelings about insurance agents or insurers. Does this description seem similar to most research involving stocks, bonds, CDS, doctors, hospitals, CPAs, lawyers, dry cleaning, and janitorial services? Such research should be classified as market research, rather than marketing research.

Thus, researchers have not produced a detailed definition of the PAP product, much less developed multivariate models that explain or predict insureds' shopping or buying behavior. In addition, insurers cannot empirically identify their target markets much beyond the actuarially defined demographic and geographic variables that only begin to describe desirable insureds. More can be done. For instance, researchers can profile consumers by their orientation to shopping, and then determine the characteristics of these shoppers. This profile could become a product positioning tool that an insurer can use to position its PAP to appeal to the appropriate market segment(s), rather than appealing to the mass market in the hope that consumers who meet its underwriting criteria will notice the insurer.

Instead, PAP marketers design methods, procedures, tactics, and systems to satisfy their own subjective perceptions of insureds' service expectations. It cannot be suggested that such decisions are based upon empirical evidence. The need for more precise promotional campaigns centers on the inherent inefficiency of promoting to the PAP mass market (Samprone 1979) when an insurer actually wants to target small segments that are actuarially desirable. As Shostack (1987, p.34) notes "in the increasingly competitive service sector, effective positioning is one of marketing's most critical tasks."

Higher level research can lead an insurer toward precise market segmentation, which facilitates the design of appropriate promotion mixes specifically designed for desired segments. A more efficient and effective use of marketing expenditures should result, as the insurer develops improved balance in its services-marketing mix -- which refers to balancing costs and tasks between the elements of price, product, place, promotion, people, physical evidence, and process (Booms and Bitner, 1991). As Ajzen & Fishbein (1980, p.223) suggests, "before we can provide guidelines for the formulation of persuasive communications that will be effective in changing behavior, we must have an understanding of the factors that determine behavior."

The PAP Product Defined In Marketing Terms

It is suggested that very few products, if any, are pure tangible products (goods) or pure service offerings with respect to marketing. Rather, most products fit somewhere along Rathmell's (1966) continuum of good-dominant to service-dominant. Since the PAP is certainly intangible, it must be classified as a service-dominant product. In the language of Shostack's (1977) molecular model concept, the organic core of the PAP (or the nucleus element) is the transference to an insurer of most of the financial risk of the ownership and operation of a private passenger automobile. Transfer-of-risk is clearly an intangible element of the PAP. Since most of the other elements of the PAP are also intangible, it is appropriate to classify the PAP somewhere within the intangible-dominant side of Shostack's (1977) tangible-dominant, intangible-dominant Scale of Market Entities. Thus, since the most important difference between goods and services is the distinction between tangibility and intangibility (Bateson, 1979), the PAP is clearly a service-dominant product. The question of just how service-dominant the PAP really is prompts the following service/good analysis.

It is suggested that the whole of the PAP entity (the PAP product) also contains some tangible-like elements that bear striking resemblances to those inherent in many tangible products. These tangible elements move the PAP product away from the extreme definition of a pure service, that is totally intangible-dominant, and toward the center of the intangible-dominant side of Shostack's continuum. This assertion defines the intangibility of the PAP product as no more intangible than Shostack's (1977) concept of advertising agencies, airlines, and investment managers, but more intangible than fast foods. The importance of this distinction is highlighted by Wilson's (1972, p. 8) assertion that "the more intangible the service, the greater will be the difference in the marketing characteristics of the service."

This analysis of the PAP begins with Kotler's (1988) definition of a product as:

...anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need....products consist broadly of anything that can be marketed, including physical objects, services, persons, places, organizations, and ideas. (pp. 445-6)

Berry (1980, p. 24) defines a good (a tangible product) as "an object, a device, a thing", and defines a service as "a deed, a performance, and effort." Kotler (1988) suggests that the service component of any offer (product) can be a major or a minor part of a firms's offer. Throughout the following analysis, a tangible product is referred to simply as a good in order to correspond with most of the cited literature.

PAP Product Analysis Based on Benefits

This section defines the total PAP product in terms of the three classes of benefits it provides insureds, thus it functions as a preface to the detailed analysis that follows in the next four sections, where the assertions contained in this section are supported. The total set of benefits provided by the product's marketing-related elements defines the PAP product and facilitates close examination of those individual elements. The PAP product consists of two distinct sets of benefits: those benefits that accrue from an intangible physical object (called PAP object), and those that accrue from two subsets of services provided by insurers and agents immediately and promised for the future (collectively called PAP service).

The PAP object is the policy itself, which provides a set of immediate benefits to every insured through the coverages in the policy. The seven basic coverages -- bodily injury liability, property damage liability, medical payment, uninsured motorist, uninsured motorist, collision, and damage other than collision -- collectively provide three continuous benefits: transfer of risk of financial loss, some piece of mind about an uncertain financial future, and an increased ability to obtain automobile financing which frees an individual's capital for other uses such as investment or other purchases. These three major benefits immediately accrue in varying proportions to every insured when s/he purchases a PAP (Greene and Trieschmann, 1984). 

Thus, the PAP object is somewhat analogous to stocks, bonds, and certificates of deposit in that it is an intangible asset that represents a contingent claim on tangible assets (of the insurer, in this example). While the intangible aspect of PAP object defines it as a service, the asset element typically characterizes a good since any contingent claim on assets is itself an asset. The accounting profession recognizes this fact by listing prepaid insurance as a current asset on firms' balance sheets (Horngren and Sundem, 1987).

Further, the insurer does not provide a significant performance with the sale of the PAP object (except as noted below). Rather, the insurer provides an intangible asset which provides a distinct set of continuous benefits that, strictly speaking, do not directly accrue from a true service performance. Instead, they result from the possession and ownership of an asset, albeit intangible. The provision of benefits through the ownership of an asset, rather than through a performance, is also an element of the PAP product that is typically an aspect of a good.

In addition to the benefits provided to insureds from the PAP object, the PAP product also provides an additional set of benefits which are termed collectively as PAP service. PAP service can be subdivided into ancillary services and contingent services. The ancillary services provided to each PAP purchaser are comparatively small, and parallel the sales-related services which are ancillary to the sales of many goods. PAP ancillary services include conveniences such as location, sales presentations, delivery of the object (the policy), and payment options. In terms of Zeithaml's (1981) Continuum of Evaluation for Different Types of Products, these services are high in experience qualities, similar to restaurant meals, vacations, haircuts, and child care. However, the ancillary services of PAP service should be placed in the middle of Zeithaml's continuum, since these elements are not peculiar to either goods or services, but are common to the marketing programs of both goods and services. The point is to not suggest greatly different marketing of ancillary services by placing the entire service product high on Zeithaml's experience qualities continuum.

An insurer's performance of contingent services, such as claims services and payments, can be a major benefit for insureds, but these services only accrue to a small percentage of insureds each year. Newman (1992) suggests that only about 18 percent of insureds experience PAP losses each year. Since contingent services, which are specified in the policy coverages listed above, are performed only in the event of a covered loss, most insureds infrequently experience this service performance. Thus, most insureds are denied the opportunity to judge the value of the insurer's contingent services for a number of years. However, when these performances are rendered by the insurer, they are clearly elements of a pure-service performance that can be evaluated somewhat by insureds.

However, even the pure-service nature of PAP contingent services may not be totally different, in a marketing sense, from some important services routinely offered with goods. For instance, the promises which constitute PAP contingent service can be roughly compared to the promises contained in warranties or service contracts extended with the sale of goods, with the exception of the larger potential magnitude of claim settlement. Furthermore, the indefinite size of potential claim settlements is somewhat analogous to goodwill, which is an intangible asset of unknown size or value when it is purchased.

The above description of the PAP product implies that, for marketing purposes, this product contains some tangible-like elements, and should not be classified as a pure service. Since it is crucial to accurately define the subject product before research or strategy formulation can begin, this possibility is explored further below using the distinctions described in this section. The following four sections describe the PAP product in terms of Zeithaml, Parasuraman, and Berry's (1985) suggestion that services marketing problems are different than goods marketing problems and thus require different marketing strategies. These researchers summarize the four traditional differences in characteristics of service firms as intangibility, inseparability of production and consumption, heterogeneity, and perishability. These well recognized criteria are used below to explore the extent to which individual elements of the total PAP product (hereafter referred to simply as the PAP) more closely resemble a good or service.

Intangibility. Bateson (1979) suggests that intangibility is the critical goods-services distinction from which all other differences originate. The fundamental difference is that services are performances, rather than objects, which cannot be seen, heard, smelled, touched, or tasted in the same manner in which goods can be sensed before they are bought (Kotler, 1988; Zeithaml et al., 1985).

As noted above, every insured purchases an intangible asset -- the insurance policy, which is the PAP object. It includes promises of reimbursement for covered losses and related legal expenses. Such promises are called coverages, and they provide every insured with at least the three immediate benefits noted previously. This bundle of benefits defines the PAP object, and they immediately accrue to every PAP buyer. Since the PAP object is the policy itself, it certainly can be seen, touched, priced, and especially analyzed in detail before it is purchased. In fact, PAP object can be analyzed prior to purchase in greater detail than most goods, especially those that are sealed in packages that prevent close prepurchase examination. Thus, the PAP object exhibits some of the same tangible-like elements of a good.

This assertion corresponds to Zeithaml's (1981) Continuum. The PAP object is high in search qualities (attributes which the consumer can determine prior to purchasing the product) since the exact coverages, which define PAP object, can be closely examined prior to purchasing the PAP. This feature of PAP object closely resembles many consumer goods that are relatively easy to evaluate, and it is in stark contrast to the almost total lack of search qualities present in such pure services as medical diagnoses or legal counsel. Thus, the PAP object exhibits some tangible-like elements (or qualities) that resemble those of goods located on Zeithaml's continuum between clothing and automobiles which are also high in search qualities.

In contrast, the promises stated in the PAP are promises of contingent service performances, such as claims handling, defense, and payments to or on behalf of the insured, which would be performed only at the occurrence of a covered loss. In addition to these contingent services, the insurer and/or its agent also provide the relatively small, ancillary, sales-related services noted above and called ancillary services. Thus, ancillary services and contingent services are the performances and promised performances which constitute the service bundle of benefits which define PAP service. The contingent nature of this set of benefits certainly meets the intangible criterion of a service.

This contention resembles Zeithaml's (1981) conception of services that are difficult to evaluate because they are high in experience qualities which are defined as attributes which can only be discerned after performance. This assertion is based on the fact that most insureds will not have an opportunity to judge the insured's PAP contingent services for several years after their initial purchases simply because they are unlikely to have covered claims for several years after the PAP purchase.

Additionally, even after an individual insured has a covered claim and experiences the performance of an insurer's PAP contingent service, that insured may not possess enough knowledge, experience, or time to properly evaluate the service delivery. This corresponds to Zeithaml's conception of credence qualities as characteristics which the consumer may find impossible to evaluate even after purchase and consumption. Thus, PAP services appears to exhibit service elements which locates this portion of the PAP product on the services side of Zeithaml's (1981) continuums somewhere between restaurant meals and medical diagnoses which are also high in experience and credence qualities.

Finally, since few insureds collect on the promises of contingent services and thereby experience that major service performance each year, it cannot be assumed that PAP insureds purchase only a service. To make that assumption would suggest that they purchased virtually nothing in each year in which they do not have a covered claim against the promises in the PAP. Rather, it is clear from the above discussion that all insureds receive a bundle of benefits by simply purchasing the PAP object, regardless of whether or not they ever have a claim against the promised contingent services.

In summary, although the PAP is certainly intangible by definition, it would be classified better as intangible-dominant, since it exhibits some tangible-like qualities. Thus, while the PAP may be defined as a service due to its intangible-dominant characteristics, existing marketing strategies and research designed for goods may provide additional bases for PAP marketing programs and research due to the pervasiveness of the tangible-like elements of PAP object.

Inseparability of Production and Consumption. This characteristic of a service organization suggests that services are typically produced and consumed at the same time (Berry, 1980). Zeithaml et al. (1985, p. 33) notes that, "Whereas goods are first produced, then sold and then consumed, services are first sold, then produced and consumed simultaneously." Carmen and Langeard (1980, p. 8) add that inseparability "...forces the buyer into intimate contact with the production process." Thus, marketing and production are highly interactive (Gronroos, 1978) since the seller and producer are the same entity (Upah, 1980).

While the PAP object is first sold and then produced, its three major benefits (asset protection, piece of mind, and credit worthiness) are consumed over the policy period, not at the time of production. This characteristic is similar to a specially ordered automobile. The insured and the agent order a PAP object to be later delivered with the insured's chosen limits and types of coverages. Upon delivery, the transaction for the policy period is usually complete (unless the insured has a covered loss) and consumption begins. This element definitely resembles a good.

Also, the marketing and production functions associated with both PAP object and PAP service often are not provided by the same entities, much less at the same time. For example, the marketing agent may be an independent agent, an exclusive agent, or an employee of the insurer. Within the independent agency system, the independent agent sells the PAP and a separate entity, the insurer, often produces the PAP object.

In addition, regardless of the distribution channel employed, while most claims processing and settlements are conducted by the insurer, there are independent claims-handling services which may process some claims in some geographic areas. Even independent agents handle some small claims. Finally, independent attorneys are frequently used in claims settlement processes. Thus, there may be as many as four separate entities involved in the total delivery of the PAP over the policy period. It can be concluded that the insured is not likely to be intimately involved with all phases of PAP marketing and production, which suggests that the PAP does not meet this distinguishing criterion of a typical service.

To examine this contention from three other perspectives, first consider that this same description could apply to the purchase of many tangible-dominant or intangible-dominant entities, from detergents and automobiles to airlines and investment management (Shostack, 1977). In fact, this description seems to only eliminate comparisons with the two extremes on Shostack's continuum of Scale of Market Entities. Thus, the total PAP product is as dissimilar to extremely tangible-dominant products such as salt and soft drinks, as it is to teaching and consulting on the extreme intangible-dominant end of the continuum.

Second, in terms of Zeithaml's (1981) continuum of products, this description also places the PAP somewhere in the middle two-thirds of the continuum from easy-to-evaluate goods to difficult-to-evaluate services. Again, only the extremes of clothing, jewelry, and furniture, and medical diagnosis, auto repair, and a root canal are eliminated from comparison with the total PAP product. That is, PAP object is easy to evaluate before purchase, but PAP contingent service is almost impossible to evaluate until later, if ever. Thus, the total PAP product cannot be classified as a pure service or as a pure product as are the products near the extremes on Zeithaml's continuum.

Third, since this description of the PAP with respect to the criterion of inseparability is not drastically different than it would be for life insurance, these contentions and analogies also are supported by Lovelock's (1980, 1983) classification of life insurance as a service directed at intangible assets. That is, PAP contingent services, if rendered, are intangible actions directed at insureds' assets, where the insured is made whole in the event of a covered loss. As with similar services, such as securities, accounting, legal services, and banking, insurance service performances can be conducted at arms-length. Thus, the customer need not be present, physically nor mentally, at the service performance.

Lovelock's classification implies that the PAP (and other financial services) does not meet the traditional inseparability distinction between goods and services. First, the PAP is not produced and consumed at the same time; it is consumed over the policy period (Lovelock, 1983). Second, the buyer of PAP object is not intimately involved with the production process; s/he is usually only involved with placing an order for the PAP object. Thus, the PAP exhibits additional tangible-like elements; further suggesting that the PAP is not a pure service with respect to the inseparability criterion.

Heterogeneity. Thomas (1978) suggests that services are highly variable since they depend on who provides them, and when and where they are provided. Zeithaml et al. (1985, p. 34) adds that "The quality and essence of a service...can vary from producer to producer, from customer to customer, and from day to day." From the above discussion, PAP service meets this heterogeneity-of-service-performances criterion. This implies that PAP service can be differentiated since it possesses this mercurial characteristic. This corresponds with Shostack's (1987) continuum showing services having high divergence.

In conspicuous contrast, the PAP object just as clearly must be classified as highly homogeneous. The PAP's coverages (PAP object) are substantially standardized between insurers within individual states where the policies are sold. Standardization defines PAP object as a commodity with little variation among the individual coverages offered by various standard PAP insurers in each state. Insureds can choose which standardized coverage groups to purchase and the dollar amount of coverage for each, but they cannot negotiate or shop around to alter the coverages provided (Wood, et al., 1989).

Thus, the PAP object is not subject to meaningful differentiation in the coverages offered within each state. This high degree of standardization defines the PAP object as exhibiting high complexity and low divergence (i.e., low in executional latitude), with little deviation experienced from insured to insured. This again suggests the PAP object is composed of tangible-like elements that are high in search qualities like many goods.

However, PAP service is highly differentiatable. An inherent problem with differentiating PAP service is that potential insureds have not yet experienced the services of an insurer that is new to them, so they must rely on other cues such as initial sales contacts, physical surroundings, correspondences, and additional personal contacts, if any, in order to form an attitude toward the insurer's service quality. In addition, most current insureds will not experience the insurer's vital service -- claim service and settlement -- for many years after becoming an insured of that insurer.

Thus, PAP service is also high in complexity, but unlike the PAP object, it is high in divergence. Thus, there is substantial opportunity for deviations between the performances of both ancillary and contingent services. In addition, PAP ancillary services are high in experience qualities, while PAP contingent services are high in credence qualities. These characteristics of service performances also suggest that PAP service should be located somewhere between restaurant meals and legal services on Zeithaml's (1981) continuums. Thus, PAP service should be highly differentiatable.

While this manuscript does not delve deeply into how the results of Service/Good Analysis eventually promotes proper strategy formulations, the remainder is a single example of how this process works. Since PAP service is highly differentiatable, the Service Elements are researched and strategized. With detailed data from focused research in hand, PAP differentiation can be accomplished through altering potential/current insureds' perceptions about the services provided by the insurance company and its agents -- such as claim service, payment options, policy coverage explanations, safety, and readable policies. Otherwise, the only obvious differentiations that every potential insured may see when considering a specific policy is the price charged for their chosen coverages (i.e., the price of PAP object), the appearance of the sales facilities, and the appearance and actions of the selling agent. This commodity-like characteristic of PAP object, and the experience and credence qualities of PAP service combine to emphasize the potential importance of positioning strategies intended to create the desired perception of product differentiation in the minds of consumers. While the contents of the PAP object offer little opportunity for real differentiation, the agent, insurer, and their representatives offer great opportunities to differentiate PAP service performances. Differentiation can result from influencing potential/ current insureds' perceptions of the PAP product's features -- which are grouped within the PAP object and the PAP services of the agent, the insurer, and their outside representatives, if any.

Otherwise, the insurer must price the PAP object low enough for word-of-mouth to create the desired increase in sales, and/or the insurer must rely on the efforts of its sales force to generate the desired sales. Thus, the commodity-like status of the PAP may tend to force an insurer toward a marketing mix that is inappropriate for the target market(s) as well as for the insurer's financial health.

For instance, researchers suggest that relying on the lowest price to sell automobile insurance is a risky strategy because pricing the policies low enough to rapidly attract insureds lowers the probability that the insurer will profit from total PAP sales. While the losses incurred by the insurer remain actuarially constant per auto, the price must be set very low, often dangerously low, to induce consumers to switch from other PAP insurers (Berger, Kleindorfer, and Kunreuther, 1989). In fact, most researchers have shown that few insureds switch PAP insurers for price alone. Cummins, McGill, Winklevoss and Zelten (1974) found that only 33 percent of insureds would switch insurers to save 20% per year. Berger et al. (1989) suggests that word-of-mouth (WOM) communication simply transmits PAP pricing information too slowly to substantially increase sales, unless the price is set well below an insurer's most likely break-even point. Insureds do not shop because they perceive homogeneous pricing, even though PAP prices vary greatly (AIRAC, 1985).

Therefore, simply communicating low price is not the answer to attracting desired insureds over time. Instead, insurers should promote packages of evidence, which should first include tangible evidence of real differentiation of PAP service elements, as well as abstract evidence of competitive prices for the PAP object, if applicable. Marketing promotions and strategies should also include and be coordinated with the tangible evidence of the peripheral cues of the agents and the insurer as the promotion moves away from the abstractness of service performances toward tangibilizing the intangible (Shostack, 1977).

In summary, the commodity-like characteristics of the PAP object suggest that it clearly fails the heterogeneity criterion of a service. In fact, competing PAP objects are quite homogeneous, except for price, and they do not involve substantial service performances. In contrast, PAP service can be quite heterogenous, but this must be communicated to insureds and potential insureds. Since claim services and settlements constitute the most important PAP service performances, and since this service accrues to so few insureds, it is inappropriate to categorize the entire PAP as heterogenous.

It is important to note that this commodity-like feature combines with the inability of an insurer to represent itself as the lowest priced insurer for desired classes of insureds to present an insurer with a serious target marketing dilemma. Insurers cannot effectively segment the market by insureds' price consciousness nor by their desire for customized PAP coverages because the PAP object cannot be designed to effectively appeal to such segments.

Therefore, how can an insurer effectively target a market and position their PAP for that market? The answer may lie in obtaining a richer understanding of insureds' perceptions of benefits, and then adjust the Service/Good Elements to influence those perceptions. As Lovelock (1984, pp. 133-134) suggests,

Without knowing the product features that consumers are specifically concerned about, it is hard for a marketing manager to evaluate performance and develop an appropriate strategy....The primary task of communication -- advertising, personal selling, and PR ...is to ensure that prospective customers accurately perceive the way in which the service is positioned in terms that are important in making choice decisions.

Perishability. Rathmell (1966, 1974), Bateson (1979), Berry (1980), Zeithaml et al. (1985) and other researchers suggest that services cannot be stored and that this aspect of a service often creates supply and demand synchronization problems. Sometimes more demand exists than can be serviced and at other times too little demand exists to productively fill valuable time. When demand exceeds supply, the excess demand is not served and the corresponding revenue is lost. Conversely, since the time during which the service was not performed is lost, the related revenue is lost.

This characteristic of services implies that if demand for a service is not constant, service firms must reshape demand and/or supply to survive and prosper (Lovelock and Young, 1979). The problem for most service firms revolves around their inability to accommodate demand peaks by simply taking their products off the shelf to supply the greater number of consumers, even if the excess demand was expected (Sasser, 1976).

It is clear that the PAP does not meet this criteria of a service. To illustrate, consider that an insurer can do almost as well by selling one million PAPs in a single quarter as it can by spreading those sales over an entire year. The insurer would simply incur the additional costs to issue the excess number of PAP objects (policies) in the shorter period and then make up much, if not all, of those costs by employing a leaner staff the remainder of the year. 

With respect to PAP services, consider the most important service -- claim service. Any insurer would be happy to provide less than their forecasted claim services because reduced claims expenses and payments would increase profit. This clearly contrasts with pure-service firms which would cease business if they did not provide service performances. So, the PAP is not perishable. Rather, the entire PAP must be considered comparable to a good with respect to the perishability criterion due to its goods-like similarities. 

In general terms, the PAP may be considered a service offering due to its intangibility. However, the marketing strategy and research characteristics of the PAP more closely resemble that of tangible products than do the attributes of many services. Service/good analysis demonstrates that the PAP substantively fails the other three recognized distinguishing criteria of a service business -- inseparability, heterogeneity, and perishability. PAP object fails all three of these criteria, and PAP service clearly fails the perishability criterion. Further, even though the contingent services element of PAP service reasonably meets the inseparability and heterogeneity criteria, few insureds have occasion to experience these services. It is also shown that recognized goods/services continua support this identification of many tangible-like elements in the PAP product.

This analysis of the PAP supports the notion that extant theories, research methods, and marketing strategies, which were developed primarily in the tangible products arena, can be used in the design and implementation of marketing research and strategy projects. Thus, it is unnecessary for PAP insurers to rely as heavily on less established services-marketing research and strategies.

It is suggested that similar analyses of other service offerings would identify the tangible-like elements of those services and thereby enhance research and strategy formulations. For instance, the remainder of the financial services industry can use service/good analysis to better understand the characteristics of products such as stocks, bonds, certificates of deposit, mutual funds, life and health insurance, and other property and liability lines of insurance. Hospitals can analyze services such as emergency units, surgery, and nursing. Doctors, lawyers, CPAs, and other professionals may be able to investigate the various elements of their services. Service/good analysis also should be applicable to services such as dry cleaning, yard care, education, airlines, or travel agencies.

The result of such analyses should improve and advance service industry research into better understanding the customer as well as enhance marketing strategy formulations since it facilitates the identification of specific, existing marketing knowledge that is applicable to services marketing. That is, when a specific element of a service resembles an element of a specific good, we can use what we already know about that good to research and market the service. It is cautioned, however, that accurate service/good analysis requires both an in-depth understanding of the service offering and the marketing literature. Therefore, unless the analyst or researcher has extensive knowledge of both, close cooperation between the analyst and the service marketer is required.

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