Alex Smith rents storage space to college students who go home for the summer but do not want to haul all of their property home and back. The business is profitable during the summer months, but when the storage space is unoccupied in the off-season, Alex loses money. Which of the following characteristics of service is most likely the source of Alex’s problem?
A) intangibility
B) perishability
C) inconsistency
D) variability
E) inseparability
The correct answer and explanation is :
The correct answer is:
B) Perishability
Explanation:
Perishability is a key characteristic of services that refers to the inability to store or inventory services for future use. Unlike physical goods, which can be stocked and sold later, services exist only at the moment they are delivered and cannot be saved for a later time. If a service is not used at the time it is available, it is essentially lost.
In Alex Smith’s case, the storage business is profitable during the summer when students need space, but during the off-season, the storage units remain unoccupied. This results in a loss because the unused storage capacity cannot be stored or sold at a later time—it is a “perishable” service. Every empty unit represents lost revenue, similar to an unsold airplane seat or an empty hotel room for a night.
This issue arises in many industries that experience seasonal demand fluctuations. To mitigate the problem of perishability, businesses use strategies like:
- Price Adjustments – Offering discounts or lower prices during the off-season to attract new customers.
- Alternative Revenue Streams – Renting the space for other purposes, such as short-term business storage or temporary workspace solutions.
- Marketing and Promotions – Encouraging long-term rental contracts that extend beyond the peak season.
- Diversification – Expanding the service to cater to customers with year-round storage needs, such as businesses or local residents.
By addressing the perishability issue effectively, Alex can improve profitability even during the off-season and reduce financial losses caused by fluctuating demand.