February 2, 2010

How to Counter Your Customer’s Perceived Risk

By myron glassman, ph.d.

When a prospect considers buying something, he asks himself, “Am I doing the right thing?” He or she associates the purchase with risk. Since the risk is in the prospect’s mind, it is perceived, but not necessarily real. Salespeople who pay special attention to minimizing perceived risk have a competitive advantage.

The amount of risk your prospect perceives depends on the type of product you’re selling: If you sell pacemakers, your prospect perceives real risk; if you sell staplers, real risk is minimal. If your prospect perceives risk, he is certain that bad things will happen if he makes the wrong buying decision. Perceived risk is a tricky stumbling block to the sale. Here are the five types of perceived risk and how to deal with each one.

Functional Risk

Your prospect is afraid that the product won’t perform as expected. Having been burned before by empty promises, your prospect is cautious.

To reduce functional risk, talk to your prospects and customers about their performance concerns and give the feedback to the people in design and production. Show prospects that you have a low percentage of warranty claims. Have an independent lab conduct torture tests. Use cut-aways of your product and the competition’s to show how yours is stronger, safer, etc. If you have a current, satisfied customer who uses (or abuses) your product in the same way your prospect will, have the prospect call the satisfied customer and arrange for a demonstration. If that’s not possible, arrange for an in-office demo or trial. Sometimes free samples or small trial orders can help eliminate your prospect’s fears about functional risk.

Be sure that the product performs as you promise. Be sure that your product really is right for the prospect. By having the guts to send your prospect elsewhere, you’re likely to get referrals when your product is fit.

Financial Risk

Your prospect wants to make sure that whatever he buys from you is worth what it costs. Both price and value are important.

If you are selling high-tech products where prices seem to be dropping as fast as new features are being added, reducing financial risk can be a big problem. You can reduce it and add value by acknowledging the risk and including upgrade and trade-in plans in your presentation.

Price your products competitively from the start. Your customer is going to hate you if he discovers that everyone else is buying the product for less, especially if there is no apparent reason why others are paying less. Some salespeople reduce financial risk by offering price guarantees. Others add value to their offer by extending the warranty or customizing the product.

Physical Risk

Customers may see some physical risk in everything from toys with sharp edges to umbrellas that pinch fingers. If you are selling one of the hundreds of products like ladders and chain saws loaded with physical risk, you have an even bigger challenge.

Make sure your product meets or exceeds all government and industry safety standards. Observe your customers using your product. Educate your customers about safe product use via seminars, films, newsletters or product instructions.

Work with R & D people to change your product’s safety design. If the ladders you sell are being set at the wrong angle, despite the little angle decal, recommend that a small, built-in level be added to make them safer.

Take customer complaints about safety concerns back to R & D. If that doesn’t work, have customers write letters describing their concerns. Invite customers in to talk to R & D people. It is in everyone’s best interest to have the safest product possible.

Social Risk

What will my friends at the club think? Generally, the more conspicuous the product, the greater the perceived social risk. And, the more that the product is a symbol of social class membership, the greater the perceived social risk.

Minimize perceived social risk by learning about opinion leaders and, if possible, getting them to use and endorse your product. For some products testimonials can be extremely effective. If the “right” people use your product, then it doesn’t have social risk. If you can get the well-respected golf pro to use the brand of clubs you are selling, it’s easier to sell the other members.

Minimize social risk by showing that you know when, where and how the product is used by the prospect’s social group. “Mr. Prospect, that tuxedo would look great on you. Typically, for the Christmas party, a lot of club members prefer this one over here.”

Psychological Risk

What does the product do for your prospect’s self-concept? People go into debt to buy a fancy car because they need it for their self-image. Minimize this type of risk by playing to your prospect’s ego: Lots of others just like him have bought the product and feel good about it.

Perceived risk has its quirks. Two people might look at the same product and see different risks. When Joe goes out to buy a car, he’s concerned about functional risk and physical risk. He buys whatever Consumer Reports says to buy….great reliability and passes all government safety standards for crash protection.

When buying a car, Bill perceives a lot of social and psychological risk. Four-door sedans are for old people! Chevys and Fords….if his friends saw him driving one, they would think his business wasn’t doing well. So, what does he buy? An expensive foreign sports car with image, status, and sex appeal.

Understanding perceived risk can help you tailor your presentation to your prospects’ needs while you put objections in proper perspective.