Economists and marketers use of the Search, Experience, Credence (SEC) classification of goods and services, which is based on the ease or difficulty with which consumers can evaluate or obtain information. These days most economics and marketers treat the three classes of goods as a continuum. Archetypal goods are:
*Search goods: those with attributes that can be evaluated prior to purchase or consumption. Consumers rely on prior experience, direct product inspection and other information search activities to locate information that assists in the evaluation process. Most products fall into the search goods category (e.g. clothing, office stationery, home furnishings).
*Experience goods: those that can be accurately evaluated only after the product has been purchased and experienced. Many personal services fall into this category (e.g. restaurant, hairdresser, beauty salon, theme park, travel, holiday).
*Credence goods: those that are difficult or impossible to evaluate even after consumption has occurred. Evaluation difficulties may arise because the consumer lacks the knowledge or technical expertise to make a realistic evaluation or, alternatively because the cost of information-acquisition may outweigh the value of the information available. Many professional services fall into this category (e.g. accountant, legal services, medical diagnosis/treatment, cosmetic surgery)
Search good
A search good is a product or service with features and characteristics easily evaluated before purchase. In a distinction originally due to
Philip Nelson, a search good is contrasted with an
experience good Economists and marketers use of the Search, Experience, Credence (SEC) classification of goods and services, which is based on the ease or difficulty with which consumers can evaluate or obtain information. These days most economics and marketers tr ...
.
Search goods are more subject to
substitution
Substitution may refer to:
Arts and media
*Chord substitution, in music, swapping one chord for a related one within a chord progression
* Substitution (poetry), a variation in poetic scansion
* "Substitution" (song), a 2009 song by Silversun Pi ...
and
price competition
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...
, as consumers can easily verify the price of the product and alternatives at other outlets and make sure that the products are comparable. Branding and detailed product specifications act to transform a product from an experience good into a search good.
Experience good
An experience good is a product or service where product characteristics, such as quality or price, are difficult to observe in advance, but these characteristics can be ascertained upon consumption. The concept is originally due to
Philip Nelson, who contrasted an experience good with a
search good.
Experience goods pose difficulties for consumers in accurately making consumption choices. In service areas, such as
healthcare
Health care or healthcare is the improvement of health via the prevention, diagnosis, treatment, amelioration or cure of disease, illness, injury, and other physical and mental impairments in people. Health care is delivered by health profe ...
, they reward reputation and create inertia. Experience goods typically have lower
price elasticity
A good's price elasticity of demand (E_d, PED) is a measure of how sensitive the quantity demanded is to its price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for others. The price elastici ...
than search goods, as consumers fear that lower prices may be due to unobservable problems or quality issues.
Credence good
A credence good (or post-experience good) is a
good
In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil and is of interest in the study of ethics, morality, ph ...
whose
utility
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosopher ...
impact is difficult or impossible for the consumer to ascertain. In contrast to
experience good Economists and marketers use of the Search, Experience, Credence (SEC) classification of goods and services, which is based on the ease or difficulty with which consumers can evaluate or obtain information. These days most economics and marketers tr ...
s, the utility gain or loss of credence goods is difficult to measure after consumption as well. The seller of the good knows the utility impact of the good, creating a situation of
asymmetric information
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.
Information asymmetry creates an imbalance of power in transactions, which can ...
. Examples of credence goods include;
*
Vitamin
A vitamin is an organic molecule (or a set of molecules closely related chemically, i.e. vitamers) that is an Nutrient#Essential nutrients, essential micronutrient that an organism needs in small quantities for the proper functioning of its ...
supplements
*
Education
Education is a purposeful activity directed at achieving certain aims, such as transmitting knowledge or fostering skills and character traits. These aims may include the development of understanding, rationality, kindness, and honesty. Va ...
*
Car repair
A vehicle breakdown is a mechanical or electrical failure of a motor vehicle in such a way that the underlying problem prevents the vehicle from being operated or impedes the vehicle's operation so significantly that it is very difficult, nearly ...
s
*Many forms of
medical treatment
A therapy or medical treatment (often abbreviated tx, Tx, or Tx) is the attempted remediation of a health problem, usually following a medical diagnosis.
As a rule, each therapy has indications and contraindications. There are many different ...
*Home maintenance services, such as
plumbing
Plumbing is any system that conveys fluids for a wide range of applications. Plumbing uses pipes, valves, plumbing fixtures, tanks, and other apparatuses to convey fluids. Heating and cooling (HVAC), waste removal, and potable water delivery ...
and
electricity
Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described ...
*Transactional legal services
Psychology
Credence goods may display a direct (rather than inverse) relationship between price and demand—similar to
Veblen good
A Veblen good is a type of luxury good for which the demand increases as the price increases, in apparent (but not actual) contradiction of the law of demand, resulting in an upward-sloping demand curve. The higher prices of Veblen goods may mak ...
s, when price is the only possible indicator of quality. A consumer might avoid the least expensive products to avoid suspected fraud and poor quality.
[
] So a restaurant customer may avoid the cheapest wine on the menu, but instead purchase something slightly more expensive. However, even after drinking it the buyer is unable to evaluate its relative value compared to all the wines they have not tried (unless they are a wine expert).
This course of action—buying the second cheapest option—is observable by the restaurateur, who can manipulate the pricing on the menu to maximize their margin, i.e. ensuring that the second cheapest wine is actually the least costly to the restaurant. Another practical application of this principle would be for competing job applicants not to propose too low a wage when asked, lest the employer think that the employee has something to hide or does not have the necessary qualification for the job.
In an unregulated market, prices of credence goods tend to converge, i.e. the same
flat rate
A flat fee, also referred to as a flat rate or a linear rate refers to a pricing structure that charges a single fixed fee for a service, regardless of usage. Less commonly, the term may refer to a rate that does not vary with usage or time of us ...
is charged for high and low value goods. The reason is that suppliers of credence goods tend to overcharge for low value goods, since the customers are not aware of the low value, while
competitive
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
pressures force down the price of high value goods.
[
]
Another reason for price convergence is that customers become aware of the possibility of being overcharged, and compensate by favoring more expensive goods over cheaper ones. For example, a customer may ask for a complete replacement of a broken car part with a new one, irrespective of whether the damage is small or large (which the customer doesn't know). In this case the new part is "proof" that the customer hasn't been overcharged.
A 2020 study into credence goods within the medical sector also showed connections between social economic standards (SES) and the likelihood of over treatment in the dental industry. Results showed that when portraying a higher SES, practitioners are less likely to offer treatment that is more invasive and expensive. This goes against intuition as the wealthier would be more likely to experience over charging compared to people of a lower SES.
Recent studies show that consumer decision making varies in the context of search, experience and credence services. Consumers spend more time searching for information about credence services and least time when buying search services.
References
Bibliography
Search
*Luis M. B. Cabral: Introduction to Industrial Organisation, Massachusetts Institute of Technology Press, 2000, page 223.
*Philip Nelson, "Information and Consumer Behavior", 78 ''Journal of Political Economy'' 311, 312 (1970).
Credence
*
*
*
*
*
*
*
*
Experience
*Luis M. B. Cabral: Introduction to Industrial Organization, Massachusetts Institute of Technology Press, 2000, page 223.
*
Philip Nelson, "Information and Consumer Behavior", 78(2) ''Journal of Political Economy'' 311-329 (1970).
*Aidan R. Vining and David L. Weimer, "Information Asymmetry Favoring Sellers: A Policy Framework," 21(4) ''Policy Sciences'' 281–303 (1988).
{{Goodtypes
Goods (economics)