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)
Functional risk
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.
Physical risk
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.
Financial risk
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.
Social risk
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
Psychological risk
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.
Time risk
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.
Bibliography
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.
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)
Functional risk
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.
Physical risk
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.
Financial risk
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.
Social risk
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
Psychological risk
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.
Time risk
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.
Bibliography
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...