Perceived Risk And Servicescape:

The Importance Of Managing The Physical Evidence In Services Marketing

Pascale G. Quester, Margaret A. McOmish, The University of Adelaide

Abstract

A degree of risk is associated with any purchase transaction. However, the perceived risk
involved with the purchase of services tends to be higher than that involved with the purchase
of most physical products. Services tend to be intangible and non-standardised offerings,
characterised by high levels of experience and credence qualities. In many service settings,
consumers must select a service provider with less pre-purchase information than when they
select other products (Guseman, 1981; Murray and Schacter, 1990; Zeithaml, 1981; Zeithaml
and Bitner, 2003). A series of hypotheses for empirical testing are presented, examining
perceived risk and the servicescape, consumer expectations and perceptions of quality
associated with the purchase of services, characterised by credence, experience or search
qualities.

Risk and the Unique Characteristics of Services

As the outcomes of a marketing exchange are uncertain, consumers aim to manage the risk
associated with transactions. Perceived risk is considered a fundamental concept of consumer
behaviour and is often used to explain both risk perceptions and risk reduction methods used
by consumers (Mitra, Reiss, and Capella, 1999). According to Mitchell and McGoldrick
(1996 p. 3) “the level of perceived risk is a product of the degree of uncertainty and the extent
of consequences that would result from a wrong decision.” Although research initially
focused on economic cost as the fundamental element of risk (Cox and Rich, 1967), Jacoby
and Kaplan (1972) expanded this construct to include five independent types of risk:
financial; performance; physical; psychological; and social. Since then researchers have
proposed that the concept relates to various types of loss, for instance, social, physical,
performance, financial, psychological, psychosocial as well as time, frustration etc (Dowling,
1986).

Much of the earlier empirical research examining perceived risk experienced by consumers
focused on consumer products (Bettman, 1973; Cox, 1967a; Horton, 1976). The perceived
risk associated with the consumption of services became the focus of researchers in the early
1980s, as academics began to debate that services marketing may be distinct from goods
marketing (Fisk, Brown and Bitner, 1993). It has been argued that consumer evaluation
processes differed between goods and services marketing (Zeithaml, 1981) and that specific
strategies should be developed when marketing services (Zeithaml, Parasuraman and Berry,
1985). The intangible nature of services makes it difficult (and sometimes impossible) for
consumers to evaluate the service offering prior to the purchase of the service, and after
purchase and use (Mitchell and Greatorex, 1993), resulting in an increase in perceived risk.

A number of researchers have investigated the multidimensional structure of the service

intangibility construct. For example, McDougall and Snetsinger (1990) propose that
tangibility has both a physical and mental component. Many services lack a physical
component for consumers to evaluate. Therefore, consumers cannot easily examine or
evaluate the service during the pre-purchase stages of consumption. Furthermore, mental

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intangibility describes the inability of consumers to develop a clear, mentally tangible
representation of the service, especially if the consumer lacks prior experience with the
service (Laroche, Bergeron and Goutaland, 2003).

In addition, services are characterised by higher levels of experience and credence attributes
and low levels of search attributes. Search attributes are normally associated with physical
products and include those attributes or qualities of a product that consumers are able to
assess prior to purchase. For example, consumers are able to assess clothing based on search
attributes such as colour, style, feel, price and fit. On the other hand, customers can only
discern experience attributes after purchase and consumption of the service, as in the case of a
restaurant meal or vacation. Hence, consumers cannot assess experience attributes until the
service is consumed. Finally, some services are high in credence attributes, where consumers
find it impossible to confidently judge the service offering, even after purchase and
consumption, as in a medical procedure or automobile service (Mitra, Reiss and Capella,
1999; Zeithaml, 1981). Zeithaml (1981) concludes that the unique characteristics of services
(intangibility, heterogeneity and inseparability) all contribute to higher levels of experience
and credence attributes and low levels of search attributes associated with many service
products. Further, there is a high degree of uncertainty for consumers when purchasing
services, where they are faced with choosing among alternatives that vary in quality and when
the quality is difficult for the consumer to evaluate (Guseman, 1981).

Risk and Services Marketing Literature

In the service marketing literature, the notion of risk and its specific role in the consumption
of services have been addressed by a number of authors both conceptually (Eiglier and
Langeard, 1977; Hoffman and Turley, 2002; Zeithaml, 1981) and empirically (Guseman,
1981; Mitra, Reiss and Capella, 1999; Murray, 1991; Murray and Schacter, 1990) and in a
number of different service settings, such as professional services (Friedman and Smith,
1989), child-care services (Friedman and Smith, 1993) and hairdressing, banking, a sporting
venue and fast-food services (Mitchell and Greatorex, 1993).

Guseman (1981) was one of the earlier services researchers to empirically examine the
concept of risk associated with the purchase of services, hypothesising that perceptions of risk
would be higher for services than for goods. In this study, Guseman examined the risk
perceptions of consumers to ten goods and ten services and found support for his hypothesis
that services are perceived as inherently more risky than goods. Likewise, George, Weinberg
and Kelly (1985) examined risk perceptions between four goods and four services on seven
risk dimensions, but found conflicting conclusions, questioning whether there are risk
differences between goods and services.

Numerous authors have found that service intangibility is positively correlated with
consumers’ perceptions of risk (McDougall and Snetsinger, 1990; Mitchell and Greatorex,
1993; Murray and Schacter, 1990) with evidence supporting the notion that the intangibility
of services results in higher risk perceptions by consumers in comparison to goods. However,
research by Laroche, Bergeron and Goutaland (2003 p. 133) found that physical intangibility
“was either poorly or not correlated to perceived risk in a statistical significant way.” Indeed,
in their empirical study of six goods and services, they found that not all services were
perceived as riskier to purchase than goods, disconfirming the previous belief that services
induce higher degrees of perceived risk.

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Perceived risk and variability between goods and services was also the focus of empirical
research by Murray and Schacter (1990) who found support for the notion that consumers
perceive services to possess inherently more risk and variability than goods. Likewise, Mitra
Reiss and Capella (1999) examined the amount and nature of information search as a function
of perceived risk, when services are classified on the basis of search, experience and credence
attributes. In addition, the research examined the issue of behavioural purchase intentions as
a function of perceived risk across various service types. The research supported, amongst a
range of other hypotheses, the notion that overall perceived risk was lowest for services high
in search qualities, whereas perceived risk was highest for services high in credence qualities.

Risk and the Pre-purchase Stage for Services

The pre-purchase stage of the consumer decision process consists of problem recognition,
information search and the evaluation of alternatives (Neal, Quester, and Hawkins, 2002).
Consumers undertake search behaviour prior to purchase to reduce purchase uncertainty by
acquiring relevant information (Murray, 1991) aimed at reducing perceived risk. As argued
by Cox (1967b p. 604) “the amount and nature of perceived risk will define consumer
information needs, and consumers will seek out sources, types, and amounts of information
that seem most likely to satisfy their particular information needs.”

Hence, one would assume that customers would seek out as much pre-purchase information
as possible on the service and its quality prior to making a decision. Indeed, Eiglier and
Langeard (1977) hypothesised that the pre-purchase search process preceding the purchase of
a service will be active, due to the higher levels of risk associated with services. Murray
(1991) explored the information needs of service consumers, developing six hypotheses based
on the specific risk perception induced by services. Results indicated that service consumers
tend to delay the purchase of products high in service attributes, favour personal and
independent sources of information, engage in observation or trial when possible and, when
equipped with relevant experience, may rely more on internal sources (Murray, 1991).

Categorising services on the basis of their degree of search, experience and credence, Mitra,
Reiss and Capella (1999) established that perceived risk would be higher for credence
services (and lower for search services) and also confirmed that such credence services would
be associated with greater information search time and use of personal sources. Chaudhuri
(2000) also examined specifically the role of risk as consequence, antecedent or moderator in
relation to information search, using more than 140 different consumer product categories (of
which, unfortunately, only very few were services) and found that the financial and emotional
dimensions of perceived risk played a significant part in explaining information search
behaviour.

Consumers’ risk reduction strategies (RRSs) aimed at reducing the uncertainty component of
perceived risk has been examined by a number of researchers (Mitchell and McGoldrick,
1996; Roselius, 1971). However, very little research has specifically examining RRSs
undertaken by consumers when purchasing services. Of those who have, none has
specifically looked at the physical environment of the service as a possible source of
information potentially used by consumers as either a surrogate for trial or as a direct source
of observational information. This is despite the fact that physical facilities of a service

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provider are considered by consumers as important in the assessment of possible quality of a
service (Crane and Clarke, 1988).

Crane and Clarke (1988) demonstrated that, while not usually cited spontaneously by
consumers as a criterion for service choice, physical facilities and location and even
appearance of staff ranked high in the overall ranking of cues relied upon in consumers’
choice of service provider. These were seen as surrogate of probable performance and
replaced the physical cues consumers can use when assessing goods prior to purchase.
Hence, consumer observations of the physical environment provided by the service provider
may be an important (and sometimes crucial) risk reduction strategy undertaken by consumers
before purchasing a service. Hence, Hoffman and Turley (2002) suggest that service
marketers can effectively manage the physical environment, or atmospherics, to reduce
perceived risk experienced by consumers.

Servicescape and Risk: An Agenda for Research

Bitner (1992; 2000) likens the servicescape to the packaging element of tangible products, in
that the physical environment ‘wraps’ the service and conveys an image to the consumer.
Servicescape is described as a ‘visual metaphor’ for intangible services, critical in forming
initial impressions through the outward appearance of the service organisation. As service
marketers distribute the service they actually produce, Berry (1980) suggests that service
firms have an opportunity to shape the environment to their specifications. Hence, the
physical elements of the service environment provide marketers with an opportunity to ‘tell
the “right” story’ about the service offering.

When discussing the abstract and intangible nature of services, Shostack (1977) noted that
consumers rely on peripheral cues where the service ‘realities’ are shaped by the tangible
aspects that can be comprehended with the five senses. For instance, when a consumer is
assessing a service prior to purchase, s/he does so based on the available tangible cues, or
tangible evidence that surrounds the service. Likewise, Fisk, Grove and John (2000) state that
the physical environment of a service is often the most important tangible aspect of a service
offering and service firms should strive to ensure that every aspect of it makes the desired
impression on consumers.

In so far as elements of the physical surrounding can be used as an observational risk

reduction strategy and a source of information, research should seek to establish the impact of
the servicescape on consumer risk perceptions prior to purchase decisions. Hence, the
following hypothesis is presented:

H1: Perceptions of the servicescape are correlated with consumers’ pre-purchase risk.
H1a: The relationship between perceptions of servicescape and consumer pre-purchase
risk is moderated by the degree of intangibility of the service (experience, search,
credence).

The service setting often creates the all-important first impressions and helps set the tone for
the entire service experience. The interior and exterior physical environment presents an
image to the customer and helps them form an impression of the organisation and its service
offering (Fisk, Grove and John, 2000). As Shostack (1977 p. 78) stated, the “setting can play
an enormous role in influencing the ‘reality’ of a service in the consumer’s mind.”

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With this in mind, researchers should turn their attention to the management of expectations
afforded by changes in the servicescape, so as to avoid over-promising or under-delivering.
To this end, we propose the following set of hypotheses:

H2: Perceptions of servicescape are correlated with consumers’ expectations of service

performance.
H2a: The relationship between perceptions of servicescape and consumers’ expectations
of service performance is moderated by the degree of service intangibility (experience,
search, credence).

H3: Perceptions of servicescape are correlated with consumers’ expectation of service

price.
H3a: The relationship between perceptions of servicescape and consumers’ expectations
of service price is moderated by the degree of service intangibility (experience, search,
credence).

Servicescape also influences the perception of quality associated with the service. Customers
often evaluate service quality based on the physical evidence of a service firm, particularly if
they are inexperienced with the service process or the service outcomes. The physical
tangible clues can make an intangible service appear more tangible and the tangible elements
may then act as surrogate indicators of quality. Consumers often evaluate the tangibles, in
conjunction with other dimensions to establish an overall quality perception of the service
organisation. For many services, the social and physical environment creates favourable or
unfavourable impressions (Belk, 1975) and can be the only cues used by customers to
evaluate the quality of the service.

With this in mind, research should also examine the perception of quality experienced by
consumers exposed to different service environment, preferably with the same service
provider but in different physical environment. The hypotheses guiding the research could be
stated as:

H4: Perceptions of servicescape are correlated with consumers’ perceived service

performance.
H4a: The relationship between perception of servicescape and consumers’ perception of
service performance is moderated by the degree of service intangibility (experience,
search, credence).

We believe the empirical examination of the hypotheses developed in this paper would
provide much needed evidence concerning the impact of the servicescape on customer
expectations and perceptions.

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