Risk minimisation is big business

How much money is spent each year by people protecting themselves against risk? In Australia alone, the figure would be billions of dollars. Think of all the insurance policies, ambulance cover, alarm systems, fire extinguishers, health check-ups, etc.

That is telling marketers an extremely important lesson – consumers hate risk, so much that they are willing to pay billions to minimise any and all perceived risk.

Do you sometimes feel like it’s an uphill battle to convince a prospect to commit? They have the need, they have the money, but they just won’t commit. Why not?

The answer is that you haven’t tipped the potential benefits scale in your favour. You need to employ some performance predictors to do the 'convincing' for you. Talk is cheap.

Every time a consumer considers a purchase, they engage in a cost/benefit analysis in their mind. This will result in a number of outcomes, for example: (a) that’s too expensive, (b) that will make me look fat, (c) it doesn’t include delivery, (d) people will think I’m cheap, (e) I’ll feel a lot safer, etc.

Consumers almost simultaneously weigh up the perceived risks (including functional, psychological, etc.) against the potential benefits prior to making a purchase, or a non-purchase.

For example, a new type of tasty soft drink that cleaned your teeth while you drank it would likely be priced higher than standard soft drinks. The potential benefits include the removal of the need to clean your teeth the conventional way (including the cost saving of not having to buy toothpaste or toothbrushes again), the potential to have cleaner teeth as the soft drink can get into all the gaps between your teeth, the improved social image associated with trying something new, the dentistry savings as a result of cleaner teeth, etc.

Or a horror book that omitted an electric shock and loud frightening sounds at the points of a climax within the story line (using visual sensory technology to assess where the reader is up to) would again fetch a higher price than a traditional paperback. Consumers trade off the potential benefits and perceived risks prior to making a purchase decision; your job is to make sure that the benefits outweigh the risks. Highlight the benefits with performance predictors, not idle claims.

When consumers purchase low cost items, they do not take as long to make a decision as when they are choosing a high ticket item. This is because with low cost items the risks carry less severe consequences. Take the purchase of a packet of lollies, for example.

Perceived Risk:

“People might think I’m greedy"

Potential Benefit:

“Eating lollies gives me extra energy”

Perceived Risk:

“Will my friends think it’s cool to eat this brand of lollies?"

Potential Benefit:

“Eating lollies makes me feel good”

Perceived Risk:

"Will the texture of the lollies feel nice on my tongue?"

Perceived Risk:

"Will the lollies make my breath smell bad?"

Potential Benefit:

“My breath will smell better and therefore people will like me”

Perceived Risk:

"Will the lollies make me feel sick after eating them?"

Potential Benefit:

“The lollies will satisfy my hunger until dinner”

Perceived Risk:

“Am I wasting my money by buying lollies?”

In the above example, the perceived risks outnumber the potential benefits. But this doesn’t necessarily mean that the consumer wouldn’t buy the lollies. One of the potential benefits might carry substantial importance and tip the scales in favour of buying.

For another example, let's consider someone buying a luxury cruiser:

Perceived Risk:

"How can I be sure the boat will perform on the water?"

Potential Benefit:

“My wife will appreciate me more because I’m trying to get the family together by owning it”

Perceived Risk:

“Will my friends accept me owning an expensive boat?”

Potential Benefit:

"Friends will look up to me because I own a luxury cruiser"

Perceived Risk:

“Can I afford the ongoing costs of owning this boat?”

Potential Benefit:

"I will be able to take customers out on my boat"

Perceived Risk:

“Does the company provide a speedy warranty service so my boat would never be out of action long?”

Potential Benefit:

"I love boating and fishing. This cruiser will be great for both"

Perceived Risk:

“Will it take long to deliver my boat once I order?”

Perceived Risk:

“Will the motor be really noisy and hurt my children’s ears?”

You should always be working on ways to increase the potential benefits and minimise the perceived risks of prospects doing business with you.

If you do not have the luxury of a Big Brand, you need to minimise the perceived risks using performance predictors.

In the example of the luxury cruiser's performance ("How can I be sure the boat will perform on the water?"), you could highlight the German engineered motor, winning of an industry award for the motor's performance, client testimonials mentioning solid performance of motor, offering of an extended 'test drive', independent research comparing the motor's performance with competitors, dollar amount of the R&D budget spent on the motor, offering of an extended warranty and boating critic reviews.