If a consumer’s decision to avoid a purchase is largely based on a perception of risk, what techniques can a marketer use to overcome any related fears held by a consumer?
This post was part of TyroCity discussion forum
Question asked by abiral_joshi
Top comments (6)
Risks can be one of the most influential factors affecting purchase habit of a customer. There are different types of risks which are functional risk, physical risk, financial risk, social risk, physiological risk, and time risk to influence customer buying habit (Kotler & Keller, 2012). We as a human being always look for a comfort zone, anything that we’ve not done before or have not used, we’re always reluctant to give it a try. We’re no different as a customer either. We look for that comfort zone and risk reduction strategies can be a way to assure us by the companies.
According to Ghotbabadi, Feiz & Baharun (2016), relationship marketing, brand image, and service quality decreases perceived risk of a customer and increases satisfaction. In their journal, they also mentioned a strong negative correlation between customer satisfaction and perceived risk.
A great technique to resolve risk can be by formulating effective risk reduction strategies. For example, movie reviews can be a great way to reduce the inherent risk for people wanting to watch a movie but reluctant fearing if the movie is actually worth their time and money. Another smart way can be by using certifications, like the organization I worked with in Often Serious claimed and widely promoted that they have got an ISO certified procedures. That is something we don’t see often, but that assures all the partners and the clients that the organization makes use of the latest and best infrastructure with an equally well-equipped team to resolve any issues and give a peace of mind to the clients and all related stakeholders.
Talking more about it, a test drive can be an effective way to give people a hands-on experience for trying out a vehicle; when they’re in the driving seat themselves, they do feel more confident with the product reducing the risk. Also, warranty/guarantee can be a technique to reduce risk and assure a customer that they’ve nothing to fear while using the product, as they’re protected for a certain period of time as mentioned in warranty/guarantee.
In conclusion, it’s safe to say that the lesser the risk associated with the product, a customer is more likely to buy the product. So, it’s important for companies to realize this fact and use risk reduction strategies to reduce or remove risk associated with their product.
Ghotbabadi, A., Feiz, S., & Baharun, R. (2016). The Relationship of Customer Perceived Risk and Customer Satisfaction. Mediterranean Journal Of Social Sciences.
Kotler, P., & Keller, K. (2012). Marketing management (14th ed., p. 171). Boston: Prentice Hall.
Building our customer relationships is built on understanding our customer’s perceived risk of dealing with us. Perceived risk is that level of risk a consumer believes exists regarding the purchase of a specific product from a specific retailer, whether or not that belief is actually correct.
In order to make a sale, customer’s perceived risk must be overcome. The more important the purchase is to the customer, the greater this perceived risk. As an illustration, if a customer is considering buying sweet corn for dinner tonight, the perceived risk is relatively low. If they are buying corn because the boss is coming over for dinner, the perceived risk goes up.
Perceived risk is a psychological factor, in which the consumer becomes skeptical in buying a product, thinking that the product might not satisfy the need. A consumer may postpone or avoid a purchase decision on buying or adoption of new products by perceiving a risk in the product (Bauer, 1960, pp. 389-98). The consumer might feel different kind of risk associated with the product and not always the risks are similar. For example, while comparing known and unknown brand say , XYZ brand and Samsung brand the consumer might find a functional risk in XYZ and buys Samsung brand. While when given option of Samsung and Apple brand, the price being constant, the Social and psychological factor might add a certain degree of risk on samsung’s side and makes Apple more preferential. The risk factors associated in buying and consuming a product can be listed out as (Kotler, Keller, Koshy, & Jha, 2009)
It is the risk that the product will not function as per the expectation of buyer. For example, the buyer might drop buying a Chinese machine perceiving the risk that the machine might malfunction early or might not work perfectly.
It is the risk that a buyer perceives buying the product causes some harm or health hazards. For example, while comparing American and Nepali cosmetics people might feel Nepali cosmetics might be of inferior quality and might affect their skin and choose American product instead.
It is the risk that buyer perceives the price worth of the product isn’t equivalent to the product’s perceived worth. For example, A buyer compares the different features of a cell-phone but finds the price of the new product as relatively higher than the buyer has a risk in buying that product.
It is the risk that the buyer perceives buying the product might not be appreciated by other people or will be an embarrassment. For example, The buyer becomes skeptical in buying the unknown brand perceiving the image of the brand in public
It is the risk that the buyer perceives buying the product might be a wrong decision and might develop anxieties. For example, the person might think the new product might not be liked by the family and everyone might constantly scolds him/her for the decision.
It is the risk that the buyer perceives that time invested in buying current product has gone in vain and if the product don’t fulfill the need, another substantial time might be again devoted to find another product
Marketing creates value of a product, so there always remains a tendency in customer to buy a product that gives them value. For e.g. if a person is given two brand to pick from, say “Juicy Conture” and “Fogg” then there is more likely that the person chooses “Fogg” as it has been popular in commercials in Nepal while “Juicy Conture” isn’t so popular brand with common people here despite the fact that “Juicy Conture” is an established brand in North America. The person might feel that “Juicy Conture” is never heard brand and has some risk associated with buying it. In Nepal, several brand popular abroad but new to Nepalese market are seen selling their legacies through advertisements, , bill board, flashers or pamphlets by using provocative taglines. For example, “LG- Korea’s Number one electronics brand, now In Nepal”. Hence, if Juicy conture needs to create value and reduce perceived risks, it can use advertisements, bill board, flashers or pamphlets using the taggedline “America’s best perfume, now in Nepal”. So, the companies must use different marketing tools to create a value of the product to the target customer.
Secondly, Perceived risk might also be related to the customer’s relationship with the retailer. If the retailer has a good relationship with the customer (say their regular customer), then the customer might easily trust the retailer’s recommendations. (Sciences, Penn State College of Agricultural, 2011). For an example, if a shopkeeper and customer have a good relationship, the consumer has the tendency to buy goods by the seller’s recommendation. Hence, convincing the retailer and giving them incentives can be an indirect way of reducing perceived risk.
Thirdly, the companies make the product close to its customers use and for this they can give free trials and samples distribution. Now a day using social media publicity and sample distribution have come into new packages. For example mobile company Gionee conducted social media marketing by running contest like "guess the price of Product" and giving the winners sample phones.
Now a day, social media marketing has become popular means to make a product familiar to a customer and help reduce the perceived risk involved in it.
Beside these, there are several strategies for reduction of perceived risks. Ted Roselius has suggested eleven risk coping strategies which can be useful for a marketer to reduce perceived risk which are as follows (Roselius, 1971)
Endorsements : An endorsement by a celebrity or a testimonial
Brand Loyalty: Buying the brand having good performance in the past
Major Brand Image: Buying a well known brand
Private Testing: Buying the product tested by the lab as good
Store lmage: Buying the brand which one think as reputable.
Free Sample : Distributing free samples to make people use the product
Money-back Guarantee : Buying the brand having the money back guaranteed .
Government Testing: Buying the brand that the government tested or has Nepal standard marks, or ISO 9001-2000
Comparative Shopping: Comparing the product features and shopping
Expensive Model: Buying the most expensive product
Word of Mouth: Ask friends or family for advice about the product.
However, Different country and economic context also make a difference in the Perception of Risk (Liang, Lu, & Tu, 2006). In an economically sound country the perceived risk is less than that of a poor country. In poor country, with the limited budget, people are most likely to be prone to Financial Risk and less likely to take chances to try new brands.
Bauer, A. R. (1960). "Consumer Behavior as Risk Taking," Dynamic Marketing for a Changing World. (R. S., Ed.) Hancock, Chicago: American Marketing Association.
Kotler, P., Keller, K. L., Koshy, A., & Jha, M. (2009). Marketing Management: A South Asian Perspective (13 ed.). Noida: Pearson Prentice Hall.
Liang, H., Lu, D., & Tu, L. (2006). Perceived Risk and Consumer Decision-making Process - A study in credit-card holders. Kristianstad University, Department of Business Studies.
Roselius, T. (1971, January). Consumer Ranking of Risk Reduction methods. Journal of Marketing, 35 , 56-61.
Sciences, Penn State College of Agricultural. (2011, February 10). PennState Extension . Retrieved from extension.psu.edu/business/start-f...
Marketing is all about the creating customer value and makes the customer happy. In business, the customers are the god for marketers. Without customer no any business exists. So that the marketer always understands the real need of customer after that only product design. First marketers study the market, the study provides insight into consumer information processing, decision making, and consumption patterns and is, therefore, critical to making planning and strategies, public policy and ethics (Morney, 2014).
All most customer want to buy reliable, sustainable, and quality good. The consumer always wants to avoid the risk. These risks are a functional risk, Physical risk, financial risk, social risk, and physiological risk (Kotler & Keller, 2012). The consumer always wants to keep safe from all these risks because they earned money from very hard work so they don’t want to waste the money. But marketer always tries to make them safer so that they can trust their product and then only the risk reduced.
Customers always want to stay on the safe side : This is an effective way of reducing the financial risk. Most of the company provides this offer for a short time interval too long time interval 6 months to 5 years. For example, Electricity is essential for all and it is consumed all most household in the globe, CFL bulb is used for emitting light so it is used every household. So that CFL manufacturing company give scheme to its customer for 1 years warranty service to keep them more secure. So customer buys this product without fear.
Always design win/win policy : The value is co-created, customer and marketer create the value of their equal understanding. For example, The EMI system is a suitable example of win/win situation. When a customer wants to buy a car but he/she cannot afford the full price. But he/she can easily afford this through EMI system through the Bank. By helping of bank customer gets the car and marketer get the money. It is the win/win situation for both.
Money Back Guarantee : this types of the facility only possible and applicable to the automobile and technological industry. For example, the brand new Honda Shine 125cc motorbike price is 2.1 lakhs after 5 years, we will easily exchange this bike approx. 1 lakhs cash price. So that customer feels safe from exchange amount and these type of scheme avoid the risk.
Branding : it is a suitable mechanism to make the trust between customer and marketer. Nowadays, school and college in Nepal are following this strategy. For example, V.S Niketan is a repeated school in Kathmandu. A few years ago, V.S Niketan School holds the whole management of Gauri Shanker School and now the G.S school equally branding as V.S Niketen. People equally trust this school as a V.S school. So Branding also reduces the risk of the marketer.
Kotler, P., & Keller, K. (2012). Marketing Management. Boston: Prentice Hall-14th edition.
Morney, R. (2014). Customer Relationship ManagementCustomer Engagement. University of Johannesburg, Google Scholar , 62.
People are very particular about their purchasing decision mainly because of many risks associated with it. Humans are unethical in a lot of ways and so their perception also may not necessarily be based on reality, concrete facts and be practical in nature. But none the less, these perceptions hold power over consumer decision to either purchase or reject products. These risks can be categorized under functional, physical, financing, social, time and psychological.
According to Kotler and Kellar 2011, consumer’s perceived risk depends upon the amount of money involved, uncertainty and their confidence in the product. (Kotler & Kellar, 2012, p. 171) Thus the consumers adopt various ways to reduce the fear brought about by the risk associated with the product before purchase.
One of the most practiced method is through survey. For example when purchasing mobiles these days, especially with so many brands, people tend to scrutinize the pros and cons through survey of user reviews. These days it is not always about the brand, it is equally about the price of the product and the functionality that they offer.
For more expensive products like vehicle, tv, washing machine etc. people go for both brands, warranty and guaranty. People also tend to reduce risks through belief in endorsement of famous and respected figures in the society. Accreditation from legal authorized bodies for the product significantly reduced the fear held by the consumer. This is especially true for consumable products. For example consumers will prefer to buy cooking oil with the accreditation of quality, or check the date of expiry in food products and medicines. Aside from these giving a little extra or free with purchase also reduces fear and motivates customers for purchase. For example adding a few more tomato tipping the weighing scale when purchasing will reduce the fear of women purchasing vegetables and help create an environment that they are not being cheated. They will option to come and buy from that vendor in future as well. Similarly after sales servicing and services also greatly reduces fear of customer.
It is very important for mangers to understand the perception of the consumers instead of staying steadfast in what they believe and perceive. These days online marketing and shopping is gaining popularity. "Providing an information navigation facility based on such risk reduction strategies such as the desired apparel product offerings and the desirable purchasing experience decreases consumer’s perceived social risk as well as increases their purchasing. (Maziriri & Tinashe, 2017)” These are some ways in which marketers can reduce the fear held by people.
Kotler, P., & Kellar, K. L. (2012). Purhase decision. In K. L. Philip Koter, Marketing Management (pp. 170-171). New Jersey: Prentice Hall.
Maziriri, E. T., & Tinashe, C. (2017). The Conception of Consumer Perceived Risk towards Online Purchases of Apparel and an Idiosyncratic Scrutiny of Perceived Social Risk: A Review of Literature. EconJournals , 257-262. Retrieved from search.proquest.com/docview/198467...
In the time of making buying decision, consumer has perception of risk that invariably deters them to carry out the purchasing activity. This circumstance majorly prevails as consumer face uncertainty and potentially undesirable consequences of quality, durability, time saving or not, influences of product on users, how long beneficial as result of purchase. Perceived risk is one of the important aspects of consumer behaviour thus; marketers and the company must deal with such risks diligently to prospect the business activity.
The perceived risks that continuously hinder the consumer buying process are physical risk, functional risk, time risk, psychological risk, social risk and financial risk (Kotler & Keller, 2016). First, talking about the physical risk, it is all about whether the product possesses any physical danger to the consumer or not. For instance, the popularly unpopular Galaxy Note 7 that exploded and Samsung had to discontinue that product. Now, the consumers’ feel threatened whether to buy for new version or not. Second, the functional risk, it is all about the experience and the features that the consumer gets when purchasing a particular product. For instance, if I purchase a latest Samsung QLED TV then I should be able to get that type of experience and the functionality for what I have paid. Third, the time risk, its all about wills I be able to get that product on time or is the product outdated. For instance, if I order a MacBook Pro and till the time they have delivered they come up with another new MacBook then it would be a waste of my money. Fourth, psychological risk, it is all about the things that we constantly think about regarding a certain product. For instance, I have been a Honda rider for almost 4 years and once I made a mistake of purchasing a Yamaha and the experience that I got from that bike was unbearable. Fifth, the social risk, the risk that we get when the product we use becomes an embarrassment in our surroundings. For instance, in my friend circle they hold branded watch and I own a normal one then I will definitely feel low and embarrassed. Last, financial risk, this is based completely on the price. For instance, if I am going to buy a new bike then I would not go for Bajaj Dominar 400 because of high repair and maintenance cost plus the high price of spare parts.
A great technique to reduce customers risk perception and related fears is ensuring transparency. This is important as to have the faith and trust build in the customer towards the brand or product. For instance; the product of apple has been able to grab the customer loyalty and has lived up to the customer expectation that makes them have the superior power ignoring the bargaining power of the customer. Their user would not like to switch to the other android phones as they are satisfied with the product and have the highest value gained.
Providing guarantee and warranty offer is one way to negate perceived risk as this ensures the credibility of the company and its offered products or services (Huges & Fill, 2012). This would provide a sense of security for consumers while making purchase decision and obliges company to take full responsibility in case something goes wrong with the product.
Many brands these days come up with their brand ambassador from movie actors, or say famous personalities. People are prone to follow their favourite character, actors, or personality. The researched shows that there are the stronger effects to high technology-oriented products when there is high congruency of the celebrity endorser (Biswas, Biswas & Das, 2006).
To sum up, most of the consumer are confused and are in fear of risk as it is their money that they are investing in different products. I believe that marketers need to help the consumers to pick the product through numerous techniques which can benefit the consumer which will help the marketers to retain those consumers for a long term.
Biswas, D., Biswas, A., & Das, N. (2006). The differential effects of celebrity and expert endorsements on consumer risk perceptions. The role of consumer knowledge, perceived congruency, and product technology orientation. Journal of Advertising, 35 (2), 17-31.
Huges, G., & Fill, C. (2012). CIM Coursebook: Marketing communication . Burlington, MA: Routledge.
Kotler, P., & Keller, K. L. (2016). Marketing Management. Boston: Pearson.
There is certain level of inherent risk associated when a customer considers of purchasing a new product or signing up for a new service which is known as perceived risk. The risk might be social risk, financial risk, time risk, psychological risk and/or functional risk (Kotler & Keller, 2016). The strategies for elimination or reduction of such perceived risk are known as risk reduction strategies. The risk reduction strategies differ according to the nature of products and services. Some of the risk reduction strategies are:
Accreditation: Accreditation is used as risk reduction strategy in educational sector. When a college or educational institution is recognized, accepted or approved by a renowned university, people feel that the institution will provide quality education and show willingness to enroll in it.
Test drives: Particularly in case of automobiles, the test drive provides the potential customers with the real driving experience. If they feel the product is offering everything they want in a vehicle, the risk is reduced.
Warranties and guarantees: Warranties and guarantees cover long duration to boost the buyer’s confidence. When the products offer after sales services, they tend to gain customer’s confidence and reduce perceived risk.
Exchange offers: The exchange offer helps to minimize the perceived risk by providing customers the option to return a product if they feel it is not as per their expectation after purchasing it.
Branding: People always trust famous brand that is liked and trusted by many people around the globe. The brand name has significant impact in purchasing decision of customers. People will be less worried in buying Nike shoes than buying other expensive shoes of not so famous brands.
Endorsement: The perceived risk tends to be minimal when well-known personality endorse certain products or services. It helps to shift the trust of people in that particular person to the product they endorse.
Reviews: If a product is reviewed as excellent by majority of the users, there is very less or almost no perceived risk associated with purchasing that product. The success and failure of a movie or book is highly dependent on the critic reviews.
Certification: Using certified products always reduces the inherent risk associated with a product as it is tested and authenticated by concerned authorities. People will opt for ISO certified product than the ordinary products without certification.
Kotler, P., & Keller, K. L. (2016). Marketing Management. Boston: Pearson Education Limited.