Key Differences Between Tangible and Intangible Products

Tangible vs. Intangible Products: Definitions and Differences

Defining Tangible and Intangible Assets

Tangible (adj.): That can be touched or felt. Figuratively: That can be perceived accurately.

Products fall mainly into two categories: tangible products and intangible products. The former are physical goods that must be manufactured, shipped, and delivered. Examples include a book, a toaster, or a telephone.

An intangible product (or asset) is anything that is not physically delivered, but rather represents a service provided. An intangible product, also called a service, need not revolve around a physical product; these are often called pure services. When someone buys or hires a service, they are paying for a process or processing—whether applied to their person (like a haircut), their mind (such as education), or their possessions (like a car repair service). The buyer is not purchasing anything physical.

Advantages of Physical and Service Products

Benefits of Tangible Products

• Products can be seen and touched, allowing for easy inspection.
• They belong to us; we do not have to pay repeatedly for each use.
• They are purchased permanently.
• They are easy to obtain. There are literally thousands of sources for physical products.
• They can be patented, preventing competitors from selling the exact same product.
• Large quantities can be stored.
• The product is consistent, maintaining the same characteristics for all customers.
• Errors can be corrected; they can be fixed or even improved after manufacturing.
• Products are standardized, meaning they are the same for all customers.

Benefits and Characteristics of Intangible Products (Services)

• Services can be delivered immediately.
• Since they are not owned permanently, we do not have to worry about their care or preservation.
• No physical distribution or circulation is required.
• They are not purchased permanently; if you discontinue the service, there is no physical item to return.
• They cannot be patented, reducing certain intellectual property complexities.
• They are not stored, saving physical space.
• Mistakes cannot be rectified after the service is rendered; prevention must be foreseen.
• They are not standardized, allowing us to customize the product according to specific customer expectations.

Disadvantages of Tangible Products

Challenges of Managing Physical Goods

• Inventory Requirement: You or your provider must maintain an inventory to fulfill orders.
• Distribution Needs: They must be physically distributed.
• IP Costs: Patenting requires paying associated intellectual property fees or taxes.
• High Cost of Uniqueness: Creating and selling something unique can be expensive. The era of easily purchasing another person's copyright and making a fortune is largely over (if it ever truly existed).
• Space and Damage Risk: They occupy space and are susceptible to damage. Tangible assets break—some before they reach you, others while tracking the customer, and others when a customer's child plays with them.
• Fixed Costs: Each tangible asset has an associated cost. Ideally, the manufacturing cost is between 1/10 and 1/8 of the selling price. For every unit that is spoiled, returned, or lost, you incur a fixed cost.