A key driver of a lot of people’s buying decisions is a fear of making the wrong choice. This leads to what’s known as “risk reduction” by the customer. You may have heard the term, “buyer remorse”; this is related. For small business marketing in particular this fear can create a major obstacle to selling. And it’s much more prevalent than many new and small business owners appreciate.
Risk reduction applies in markets where the customer sees the purchase as high value. It might be that the price of the item is a lot of money for them. Or, generally, it’s a high priced item. But you don’t define it simply in money terms. An industrial buyer might place considerable value on a $50 set of plugs – because without these his firm’s machines won’t run. And he knows that his current supplier’s plugs always work so he’ll stay with these.
How Customers Avoid Risk Thus, in markets where people perceive “risk” levels as high, they take steps to reduce the risk or the fear that the purchase will go wrong. Often, the greatest point of pleasure for the buyer is the actual moment of purchase. Thereafter it’s downhill. You’ve probably experienced it yourself. You’ve just bought a product and then the buyer remorse sets in. Did I buy the right product? Did I pay too much? Did I get the right color or style? Do I really need this? Will it actually do what the sales person said? Amongst the most avid readers of adverts are people who’ve already purchased a product – they do it to reassure themselves that they made the right decision.
The sorts of strategies that people employ to reduce risk include: they buy products or services that they’ve purchased before, as they know that these won’t let them down; they buy only well-known brands; they buy products that friends or people they trust have recommended. In b2b, many buyers try to reduce risk with multiple sourcing. They may also stick to tried and trusted suppliers, making it hard for new suppliers to break in.
How This Affects Sales So, how does risk reduction affect the marketing of a small business? In markets where perceived “risk” is high, the new or the small business that isn’t well established will find it tougher to compete against better known brands. Customers will be much less willing to “take a chance” in buying their products or services.
One of my clients was a small subcontractor in the construction industry. His work was excellent, reliable and high quality, yet he struggled to get on the tender lists of main contractors. It was the old chicken and egg: they wouldn’t let him in because they didn’t know his work, and he couldn’t fix that because they wouldn’t let him in. In this case, we drew up strategies to help buyers overcome their worries. We developed a strong website; built up a portfolio of previous work that included glowing testimonials; we made personal contact with the buyers; and we arranged to show them round previous jobs. Gradually, we wore down the “fear” barriers and the tender invitations began to roll in. That company now has a multi-million turnover.
In b2b, attitudes to risk can vary depending on where the buyer stands in his company’s hierarchy. For instance, owners can be less risk conscious than employees. The owner may be more likely to take a risk because he has no one to answer to. On the other hand, the employee, mindful of the wrath of his boss should the purchase go wrong, might tend to be more conservative. So, he’s the one most likely to stick to trusted suppliers, or buy only from those best known. The old adage still applies: “No one was ever fired for buying IBM”.
Overcoming Customer Fear To overcome the “risk reduction” problem, you first have to evaluate the extent to which it influences your markets. Set it on a scale of 1-10. Anything below 5 is probably manageable; above 5, you have to deal with it by developing strategies to mitigate its effect. I mentioned some of these above. For more ideas, read my Learning E-Manual: “How to Write a Marketing Plan for the Small Business“.
Of course, the shoe could be on the other foot. Perhaps it’s you who has the edge over your competitors in a high risk market. In that case, you have a competitive advantage. And you should be exploiting it to the maximum.