Make What Your Selling as Risk-Free as Possible

Consumers are risk averse. This means that when making a purchase decision, people prefer certainty over ambiguity. This is why people often order an entrée they have tried and like rather than take a chance on a new dish.

Figure 1

One of the reasons so many people love Amazon is that there are customer submitted reviews for nearly every product. Given the option of comparable printers in Figure 1, which would you choose?

Personally, I would choose Printer A and happily pay the $30 premium. It’s not that Printer B is a bad printer, it just seems like much more of a gamble. The fact that Printer A has 156 reviews with an average of 4 stars lets me know that it is an all around good printer….it is the safe choice.

In my experience, consumers are driven by this idea of a ‘safe choice‘. They will often resist trying something new, because they don’t want to take a risk and end up regretting there decision. The strength of this resistance varies on factors such as price, switching cost, and product importance (i.e. new type of peanut butter vs. new computer OS)

Recognizing that consumers long for the ‘safe choice’, brand and business owners should make their products as risk-free as possible. One way to do this is with a great return policy.

As Roger Dooley noted in his blog Neuromarketing, consumers actually put a specific value on a store’s return policy, or more accurately, the option of returning an item. He writes:

A study by researchers at Northwestern and MIT found that consumers treated a return policy as equivalent to a price difference in the product. Not unsurprisingly, that value varied depending on how “risky” the purchase was. The paper goes through a whole lot of math to arrive at what the authors call an “option value” – more or less, how much more the consumer will pay for a strong return policy. They arrived at these values:

• Men’s Top – $3.19
• Women’s Top – $5.00
• Women’s Shoes – $15.81

Takeaway

If you enjoyed this article, you may be interested in some others from the Understanding Customer Thinking series:

• Part 1: Don’t Overwhelm with Choices
• Part 2: The Framing Effect
• Part 3: Decoy Pricing
• Part 4: The Anchoring Effect
• Part 6: The Placebo Effect