Selling products and services share many similarities, but the differences can also be significant. Products are often tangible—something the customer can touch and feel—which gives a stronger sense of what they’re getting for their money. Services, on the other hand, are often experiences or outcomes that people “buy”—something more abstract and less tangible. This difference becomes clear when we look at the psychological principles that influence customer decision-making, and how we perceive physical products versus services, something that research also supports.
The Touch Effect and Prospect Theory
The Endowment Effect
Research shows that people assign higher value to objects they can physically touch, known as the endowment effect. This phenomenon means that when customers physically interact with a product—by holding or testing it—they unconsciously begin to feel ownership of it, increasing the likelihood of purchase. It’s a psychological tool that can be effectively used in sales processes, especially in physical retail. When customers feel a personal connection to a product, they’re more inclined to buy it.
One of the most famous examples of the endowment effect comes from a study by Daniel Kahneman, Jack Knetsch, and Richard Thaler, where students at Cornell University were given a coffee mug and later offered a chance to sell or exchange it for an equally valued item (pens). The researchers found that the amount participants demanded to give up the mug (willingness to accept) was roughly twice the amount they were willing to pay to acquire it (willingness to pay).
Prospect Theory and “Ownership”
Kahneman and Tversky’s Prospect Theory (1979) explains how people often assign greater value to things they have or perceive as their own. This applies not only to physical contact with products but also to services. When customers get to use or test a service—for example, by creating a personal account—they start to feel a sense of ownership, increasing their willingness to buy or subscribe. This principle applies to both tangible products, where physical contact creates a sense of ownership, and to services, where personal connection plays a crucial role.
Physical Products vs. Services
Products
Physical products are concrete and have a tangible value. Customers can touch, test, and immediately assess what they’re getting for their money. This creates a stronger sense of ownership. For example, in a store, a customer holding a product might instantly start imagining how it fits into their life, increasing the likelihood of purchase.
Services
Services, on the other hand, are abstract and often linked to an experience or outcome that’s harder to “grasp.” This means selling services requires different approaches to create the same sense of ownership. For services, this can be achieved through personal involvement—like registering with a personal email address or creating a user account. This way, customers begin to feel a sense of ownership even though they can’t physically “own” the service.
Pricing
Products are often priced with precise amounts, like 199.99 NOK, which gives customers the impression that they’re making a smart purchase. Services, however, are often priced with round numbers, appealing to the perceived overall value rather than specific cost breakdowns. This difference can be leveraged to appeal to customers’ psychological need to feel like they’re making a good deal.
Marketing
Product marketing often focuses on concrete facts and specifications—like size, durability, or functionality—appealing to the customer’s rational thinking. Service marketing, on the other hand, is more emotional, targeting how the customer will feel after receiving the service (e.g., well-being, satisfaction, or improvement).
The Experience Effect – Recommendations and Reviews
When it comes to services, customers are often more inclined to trust other people’s experiences and recommendations. Services are subjective, and their value can be hard to assess upfront, making customers rely heavily on reviews, recommendations, and testimonials. This makes social proof and credibility key factors in marketing services, as they have a major impact on the customer’s buying decision.
Pricing and Psychological “Permission” to Buy
Discounts often serve as a psychological justification for a purchase, giving customers a sense that they’re making a smart decision. For products, a discount can make the customer feel like they’re getting a “deal” they can’t pass up. For services like massages or spa treatments, discounts appeal to the emotional need to treat oneself, while reducing the guilt of spending money on something non-essential.
Khan and Dhar (2010) show that discounts on pleasure-based products often reduce guilt more effectively than for essential goods. The discount serves as a psychological excuse to indulge, and the lower price makes the purchase easier to justify.
Conclusion
Both physical products and services are influenced by psychological principles like the endowment effect and Prospect Theory, but sales strategies must be tailored to the nature of what is being sold. For products, physical contact can be a strong motivator, while for services, the feeling of ownership—created through personal registration or customized offers—plays a bigger role. By understanding how ownership impacts buying decisions, both salespeople and marketers can effectively increase customer investment and loyalty, regardless of whether they’re selling physical products or digital services.
There is a subtle but important difference in how discounts influence purchasing decisions: For products, discounts can create a sense of a deal too good to miss. For services, emotional appeal plays a larger role; discounts on experiences like massage sessions or spa treatments reduce guilt and give customers a “valid” reason to invest in themselves. This makes service pricing feel like a reward, where the discount serves as a psychological permission to treat oneself, while the customer feels they’re getting more than just a transaction—they’re gaining an experience.
