The Price of an Intangible Product Attaches Not to the Thing but to Who Is Saying It

Someone buying a chair is not buying timber and fittings. They are buying the state of being able to sit. And that state comes into being only when the properties of the chair combine with conditions on their side — the room, the body. Neither half produces it alone.

An intangible product is not a product without a shape. It is a product in which that manner of coming into being is on open display. Divide by shape and tangible goods become things with value in the object, while intangible goods become an exception: value with no object. Yet a chair of identical material sells at a different price depending on where it stands, which shows that for tangible goods too, the price is not attached to the object itself. The difference is one of degree rather than of presence. Seen from the buyer’s side, it appears as a difference in how many cues they have been handed that can be checked before buying.

For intangible products, this article takes on three questions. What the thing called intangible actually is. What decides the ceiling of the price. And how to apportion the part that can be copied against the part that cannot. All three are structures common to intangible offerings in any field, so they can be written from outside.

There are things that cannot be written. What your own offering should cost, how much to hand over for nothing, how to design the second transaction. These change entirely with what you supply and whom you supply it to. Put a number here and it becomes one more cue for skipping the examination of the content. That substitution is exactly what this article is about.

The damage has a characteristic shape. It appears as the price refusing to move while the work of improving the content continues. What improved is invisible before purchase. What is invisible does not enter the judgement. And what did not enter the judgement does not enter the price.

Left alone, the response splits in two. Improve the content further, or tidy the presentation further. The first works slowly and the second works fast. Keep choosing the fast one and what accumulates is materials and credentials. They do make transactions easier to close. The ceiling still does not move. The reason it does not sits in the structure below.

Starting from the explanations in circulation, this article sets out where value comes into being and draws three objects of design out of it. The order follows the order in which a buyer judges. What is visible before buying, what stands in for it when nothing is visible, and what remains after receiving. Read in that order, the stage where your own transactions stall becomes visible.

Explanations of Intangible Products Are Built as a Difference from Tangible Ones

The explanations of intangible products in wide circulation are mostly written as a subtraction from tangible goods. And the side being subtracted from — what happens with tangible goods — is examined in none of them.

An intangible product is defined as a product or service with no physical form. The examples given are consulting, training, recruitment, online courses, digital documents and tools. The emphasis usually falls in three places.

First, the low cost. No materials, no stock, no delivery, so margins run high. In formats that can be copied — video, documents, tools — the cost of supplying the second and every later copy falls near zero.

Second, the difficulty of selling. The buyer cannot confirm the content in advance, so the burden of persuasion is heavier than for tangible goods.

Third, the procedure of starting from the buyer’s problem. Since what is being sold is not fixed in advance, you identify the problem first and present the offering as its solution.

As observations, the three are accurate. They function as practical advice as well.

Now draw out the premise they share. Cost is low because there are no materials. Selling is hard because nothing physical can be shown. You start from the problem because nothing sits ready-made on a shelf. The basis of comparison is always the tangible side, and that basis goes unexamined.

For someone who has handled tangible goods, a difference is the fastest route to understanding. The trouble begins when a prescription is derived from a description of difference. Nothing can be shown, so make something showable. Thicken the documents, line up the case studies, add diagrams. These are operations that move an intangible offering closer to a tangible one; they do not touch its own properties.

The ordering has a second effect. The low cost is the property spoken about first.

A low cost is attractive from the side of the person starting a business. No stock to carry, little capital to begin with. Put that first and the properties seen from the buyer’s side get pushed behind. The starting point of design then follows the same order. What can be made cheaply, what can be copied for a better margin. The question of what comes into being on the buyer’s side arrives afterwards.

Small capital is decisive at the point of starting. The trouble is that the condition of starting stays on as the principle of design. Keep thinking in that order after starting and only the easily copied parts multiply.

Attributes You Can Check Before Buying and Attributes You Cannot Know Until You Use It

What intangible points to is not the absence of shape but the scarcity of cues that can be checked before buying.

Economics dealt with this distinction early. The economist Phillip Nelson divided the attributes of goods into two (Nelson, 1970, Journal of Political Economy, 78(2), 311–329). Attributes that can be established by inspection before purchase, and attributes that only appear once the thing is used. The colour and size of a garment sit in the first; taste and comfort sit in the second. And the higher the share of the second, the more the buyer relies on cues other than pre-purchase inspection.

What that classification handles is the kind of information a buyer uses. It is not an argument about which goods are better. What is borrowed here is only the point that the share of checkable attributes changes the manner of judging.

Intangible products sit at an extreme of that share. Almost nothing can be inspected before purchase, and the centre of the value appears only after use. The quality of a consultation is unknown until you receive it. The content of a course is unknown until you open it.

From here, the real difference from tangible goods appears. The problem is not the absence of shape but the thinness of checkable attributes. And thinness is a matter of degree. Tangible goods also contain attributes that cannot be known until use.

Read as a matter of degree, the place of the response changes too. The question becomes whether one more checkable attribute can be added. From there is no physical form nothing can be derived. From the attributes are thin comes the work of asking which attribute could be handed over before purchase.

The kinds of attribute that can be added are limited, though. What appears only after use cannot be moved into a form checkable in advance. What can be moved is the material for judging — how the thing is built, whom it does not suit — and no further. Push past that to demonstrate results in advance and what you can show is only other people’s outcomes.

The role that the object was playing is explained by the same distinction. A physical object works as a cue that supports understanding. Look and you know, touch and you know, place it and you know. The more cues, the easier the judgement before buying. With intangible products these cues are few. Few, and no more: the manner of coming into being is the same.

Tangible things have objective performance and intangible ones do not, so they cannot be called the same — this is one reading.

Where performance is measurable — strength, dimensions, service life — it can be measured independently of the receiver’s conditions. Measurable performance and the way a price is decided are separate matters, though. Timber of the same strength trades at different prices according to use. What decides the price is not the performance but the situation in which that performance is required. Measurability does not move the place where value comes into being.

When Selling an Intangible Product Is Called Hard, What Is Hard

When selling an intangible product is called hard, the centre of the difficulty is not the technique of persuasion. It is that the material the buyer needs for judging exists only on your side.

The two differ in where the material sits. In selling tangible goods, the object and its specification are already on the buyer’s side. The seller’s job is to help position that material. With intangible products, the work begins with handing the material over. Say it is good without having handed anything over and that is a claim, not material.

From here the work turns toward increasing the cues. Thicker documents, more case studies, longer credential lists. They sometimes work, but what increases is the volume of material for judging, not its kind. As volume rises, the buyer’s processing load rises. As load rises, judgement is simplified, and a simplified judgement leans on price. The operation that fills the weakness works on the side that invites price competition.

There is a second difficulty, coming from order. In a business selling goods, what is solved for whom is decided first. Without a use, neither the specification nor the price can be fixed. With intangible products, that stage is easily skipped. The content itself can be built first.

Build the content first and the use has to be found afterwards. Something presented before its use is settled has no place to sit on the buyer’s side either. What has no place to sit does not even enter comparison. It is held in reserve before it is considered.

Part of what is called hard to sell comes from this order. Rather than the absence of something to show, the real obstacle is that the content was finished before the use was fixed.

And the two require opposite responses. Against thin cues, the response is to change the kind of material you hand over. Against the order problem, the response is to fix the use before building. Push both into the single phrase improve at selling and they stay undistinguished while persuasion technique piles up.

The distinction shows in how you are refused. Refused because the cues were thin, the buyer hesitates and then passes. Let me think a little more, I would like to see others. Refused because the use was unsettled, the buyer does not hesitate at all, because the deliberation never began. The first wants material; the second wants a use.

One case falls outside. Where the buyer arrives with the use already decided, the order problem does not occur. They come saying they want this kind of thing for this purpose. What remains there is only the thinness of cues, and the response narrows to one. The difficulty doubles only in transactions where you are also proposing the use.

When Quality Cannot Be Told Apart, the Ceiling Stops at the Assumed Average

Where checking stays impossible, the ceiling of the price is fixed by the buyer’s assumption. However good the content is, if it does not reach them before purchase, the price cannot leave the assumed average.

The mechanism has been formalised on the market side. The economist George Akerlof argued that where information about quality differs between seller and buyer, the efficiency of the market is damaged (Akerlof, 1970, The Quarterly Journal of Economics, 84(3), 488–500). Buyers cannot tell quality apart, so they will only pay a figure that assumes an average. Sellers above the average then withdraw, the average falls with them, and the figure falls further.

Transactions in intangible products carry that structure almost intact. Two things follow. The ceiling is decided by the assumption of an average, and the higher-quality supplier is the one more likely to withdraw.

The structure loosens in repeated transactions. Once a transaction has happened, the buyer knows the content. From the second onward the gap is smaller. So the constraint bites hardest on the first transaction alone.

And the cost of closing that first transaction is higher than at any later stage. Absorb that cost with a discount and the first figure becomes the reference point for everything after. A reference point keeps working from the second transaction onward.

There is a consequence that is easily missed. The buyer is not aware of the loop either. They do not know that they are judging against an assumed average. They simply feel that about this much seems right. It arrives as a sensation, so no reason can be given when they are asked for one.

Explaining quality therefore moves the judgement very little. The explanation is not refuted; it fails to reach the entrance of the judgement. The judgement was finished before the explanation was heard.

What works against this structure is not explanation but a form that can be checked. Let part of it be actually received, let a bounded section be tried. Only operations that shrink the unchecked region can move the assumed average.

That operation has a limit as well. What has been made checkable falls out of the transaction itself. Make everything checkable and the reason to buy disappears. So what you hand over is confined to the part that bears on judgement and does not, on its own, reach the goal. How much to hand over is a judgement about kind rather than quantity.

Who Is Saying It Is a Stand-in Indicator for What Cannot Be Checked

Where the content cannot be confirmed, the material for judging is sought outside the content. Who is supplying it, what that person has done before, who recommends them. None of this is information about the content, yet it works as a cue for inferring the content.

The phenomenon gets discussed as a general claim that trust matters. Seen structurally, something more specific can be said. Who is saying it is a stand-in indicator for the part that cannot be checked. A stand-in, not the value itself.

The distinction has practical effects. Two things follow from it.

One. The indicator carries more weight in transactions where the unchecked region is larger. In a single high-value transaction, credentials and recommendations weigh heavily. In small transactions that can be tried, they weigh little. So preparing a form that can be tried is also an operation that lowers dependence on the indicator.

Two. The indicator rises and falls without the content changing. The same offering with more people recommending it shows a higher indicator. That rise is unrelated to any improvement in the content.

Are credentials and trust not a reflection of quality? It can also be read as going too far to call them unrelated.

In many cases they do reflect it. High quality brings repeat requests and credentials accumulate. There is a correlation. A correlation existing and it being the value itself are different things, though. Correlations can be produced by other routes. Increase exposure, increase volume, appear alongside prominent names. These move the indicator without touching the content.

And moving the indicator produces results faster than improving the content. What is faster gets chosen. With only the indicator leading, first transactions close easily, and the gap surfaces from the second, once the content has been checked.

Treat the indicator lightly, though, and a different problem appears. Even with good content, if there is no cue at all before purchase, no first transaction begins. Without a first there is no second. A stand-in indicator is a device for getting through the entrance.

Indicators also differ in kind. Recommendations and credentials are indicators borrowed from other people’s judgement. Being borrowed, they rise and fall with the lender’s circumstances. What you write, what you handle and what you refuse to handle, by contrast, are indicators in which your own judgement is the thing on display. The second kind has a property the first lacks: it cannot be separated from the content. Showing the sequence of your judgements is itself showing part of the content.

Credentials, Guarantees and Relationships Compensate for the Disadvantage; They Do Not Reduce It

Three common instruments all compensate for the disadvantage of not being checkable, and the unchecked region itself remains.

Presenting credentials lets the content be inferred from past outcomes. A guarantee lowers the buyer’s risk by having the seller carry the loss if things go wrong. Accumulating a relationship — publishing continuously, giving things away, staying in contact over time — shrinks the unchecked region slowly.

All three work. The third differs in kind from the other two, in that it increases cues before the first transaction. It can produce a state in which the buyer already knows something of the content before buying.

With that said, the position is clear. All three are answers to what cannot be checked. None of them is the content.

Lose that distinction and strengthening the answers becomes the main work of the business. More credentials, thicker guarantees, more contact. They all work, and what works is the ease of closing, not what you hand over.

Improving the content alone does not fill the unchecked region either. If it does not reach the buyer before purchase, the quality in hand goes unreflected in the price. Both are needed. The dividing line is which one leads. Content first with answers attached afterwards, and the gap holds from the second transaction. Answers alone in front, and it collapses at the second.

There is a second effect to a guarantee. It lowers the buyer’s risk and dulls the seller’s own judgement at the same time. With a guarantee attached, things sell to buyers they do not suit. Buyers they do not suit use the guarantee. The usage is booked as a loss, and it is not recorded as the result of selling to the wrong buyer.

Since it is not recorded, the response moves toward tightening the terms of the guarantee. Tighten them and the original effect fades. The cause sits at the entrance while the adjustment happens at the exit.

Credentials aid inference, guarantees absorb the loss of failure, relationships close the distance over time. None of them makes inference unnecessary. Only handing over part of the content does that. About the part handed over, the buyer is confirming rather than inferring. Aids to inference and removals of inference are different kinds of thing. No amount of the first becomes the second.

The Two Faces of a Copying Cost of Almost Zero

A low copying cost is the reason a price can be set high and the reason it can be set low.

The first face is the severance of price from cost. Supplying the second and every later copy costs almost nothing, so a price cannot in principle be derived from cost. This is the clearest instance of the general rule that price is decided independently of cost. With tangible goods, cost exists as a floor and drags the price toward it; with intangible ones there is nothing to drag. The price is decided by the frame of comparison and by how the unchecked region is filled, as taken apart in Do not begin pricing from cost.

The second face is downward pressure. A copying cost near zero also means there is no ceiling on supply. With no ceiling, there is no constraint on lowering the price either. The same thing can be issued endlessly, at any price. And the copying cost is zero for entrants as well. Nothing inside the format itself prevents someone from issuing similar content more cheaply.

Quality differentiates, so surely you do not compete with the merely cheap — this is one reading.

Sometimes you do not. The constraint that a difference in quality does not reach the buyer before purchase applies here too, though. Where buyers cannot tell quality apart in advance, pressure to choose the cheaper option operates.

There are fields where the pressure does not operate. They are fields where the substance is whom you deal with rather than the content. Someone issuing the same content cheaply does not displace you. What is being sold there, though, is not the copyable content.

The two faces arise from a single property. One single fact — that no cost constrains it — serves as grounds for the high side and for the low side alike. You cannot take only one of them.

Against downward pressure, the means of defence on the content side are limited. With tangible goods, materials and equipment form a barrier to entry; intangible products have none. What remains is only how much of the offering cannot be copied.

Increasing the uncopyable part without limit is not the answer either. The uncopyable part consumes your time at every delivery. Increase it and a ceiling appears on how many you can supply. Once that ceiling appears, income is bound to a quantity of time. This cancels the very reason for choosing an intangible product.

Making an Intangible Product Means Deciding Three Apportionments

Three objects of design come out of the structure so far. None of the three thins the content.

First, how much of the offering becomes checkable before the transaction. Not all of it can. Hand over everything and there is nothing left to transact. What you hand over is the part needed for judgement, not the whole of the content.

The part needed for judgement is the material for deciding does this suit me. What is handled and what is not. How the thing is built. Whom it suits and whom it does not. Handing these over does not complete anything on the receiver’s side. They are material for judging, not the outcome.

Second, separating the copyable part from the uncopyable one. The copyable part takes the downward pressure; the uncopyable part — where your judgement enters each time, where the shape changes with the other side’s situation — does not. Mix the two into one product and the whole is priced as copyable. Keep them separate and each takes its own kind of price.

Third, how the second and later transactions are designed. The unchecked region is resolved at the first transaction. What follows happens under entirely different conditions. Apply a design meant for the first transaction to the second and it becomes excessive.

The boundary between what can be handed over and what ends the transaction lies in kind, not in quantity. Material for judging — what is handled, how it is built, whom it does not suit — can be handed over without limit and the transaction survives. The receiver cannot reach their goal with it alone. Reaching the goal requires the work of applying it to their situation. Hand over the result of applying it to their situation, however, and the transaction ends. That application was what you were handing over.

The line cannot be drawn by depth of content. A deep principle can be handed over without ending anything; a shallow but specific answer ends it. The question of how much to give away for free stays unanswered because it is posed as a question of quantity.

What is designed this way, marked off from function, is sometimes called semantic value. It is the value that comes into being through what a thing means to its receiver, among things that perform the same function. The name is convenient, and it needs care. Meaning is not conferred by the sender; it comes into being in combination with conditions on the receiver’s side. So what can be designed is not meaning itself but the conditions under which meaning comes into being — what is handed over, and what is not.

What Remains on the Receiver’s Side Shows in the Shape of Their Explanation

What to look at is not satisfaction. It is not what you handed over but what stayed with the other side.

The first is the content of their explanation. When they explain what they received to a third party, what do they say? A summary of the content you supplied means it was received as information. A form translated into their own situation means value came into being.

The second is the shape of the second enquiry. Asking for the same thing in the same format means what you handed over was consumed. A request that has moved to a different stage means the earlier one is still with them.

The third is where the negotiation over price occurs. Where the content has not landed, the negotiation is about the total. Where it has, the negotiation is about scope. A conversation of the form we do not need this part means the content has been understood in parts.

All three look at what remained on the other side rather than at what you handed over. With intangible products, what is handed over and what remains do not match. That mismatch is a property of the format.

Satisfaction is excluded for the same reason. It is measured immediately after receipt, and what shows highest immediately is whether expectations were met. Meeting expectations is not the same as value coming into being. Where value does come into being, a certain discomfort can appear immediately after receipt, because a premise has shifted. Things settle only after the thing has been used.

So designing to raise immediate satisfaction pulls toward content that leaves premises untouched. Satisfaction rises, and the second enquiry arrives in the same shape as the first. The indicator improves while what you hand over grows lighter — that is how the sequence runs.

How much to hand over for nothing, what to charge for the copyable part, how to design the second transaction. Write a benchmark and the benchmark itself starts working as a stand-in indicator. What was meant to help judge the content turns into a cue for not looking at it. The substitution this article set out to examine happens right there.

Set aside the division by shape, and what remains is a matter of degree: how many attributes can be checked. And as the degree changes, so does the response. On the thin side, what caps the price is not the quality of the content but the route by which quality reaches a buyer before purchase. Content and the route by which content travels have to be built separately, or neither grows on its own.

Sorting what is already in hand into two is where this can begin. Is it an aid to inference, or a removal of inference? Credentials, guarantees and long publishing all belong to the first. Handing over a bounded section, handing over the way of thinking itself, handing over the material for judging — these belong to the second. Hold only the first and the price stays inside the assumed average. Which to increase is decided by looking at what happens in your first transactions now.

The question of what builds the uncopyable part is handled in How to make a concept and How to build a worldview.

The manner of coming into being that intangible offerings lay bare is part of the design question of where the source of value sits. The whole picture of that design is in Stepping down from price competition.