Dr. Pradeep Salgaonkar speaks about the different types of perceived risks and how marketers should focus on managing and reducing the same.
Here’s a ‘purchase decision’ incident of a middle class, middle aged, working lady, whom I would classify as a ‘not so vulnerable’ consumer. She purchased a 50 inch LG smart TV with K4 HDR technology. The need for buying a new bigger TV emerged when she visited a friend’s house, where she saw the big TV’s picture quality and probably started comparing it to the 32 inch TV that she had at home. The obvious next step was a preliminary search on internet for different models and features of TVs.
This was followed by a visit to a showroom to get a firsthand look at models available and get more information. She collected basic details of a few models and different brands. Though she collected information of all brands available, subconsciously somewhere she was inclined towards LG, as her previous two TV sets were from LG. A loyal customer you could say. Few days passed, the customer could not make up her mind regarding which TV to buy. The choice of brand was easy as she decided to stick to the same brand she had owned. She had faith and trust in this brand and her perceived risk was very low as far as products from this company are concerned.
More search on the internet and a second visit to the showroom enabled her to collect more information about the product. But, now she was introduced to newer features like Nano technology, 4K UHD, HDR, QLED, OLED and more – from different brands, comparison of picture quality and also varying sizes and pricing. She was more confused now and wanted more time to make her purchase decision, owing to technical specifications of different models. Back home, she searched for more information on various features, including online reviews by customers.
Having decided the brand and the retailer, she now decided to go for the third time and make the purchase. This time she was certain about the model that she wanted to buy. But to her luck, that particular model was not available with the store. So she had to choose another model now. It took some time though, but this time she placed the order for purchase as she could understand the features in different models better.
Although this was not a very high value purchase, the confusion was due to her perceived risk associated with the product. Though the brand was decided, advanced technology backed features made the decision on a specific model difficult. Marketers and Customer Service Executives (CSEs) should understand that the perceived risk, in case of products backed by technology is usually high for many customers. And if this aspect is not handled properly then there are chances of losing the customer.
Types of perceived risks
A customer’s decision could be influenced by any of the following types of perceived risks: (a) Functional risk – risk perceived with the performance of the product. Whether the features would function properly, whether one would be able to operate the product easily or not, what if the product fails to perform properly because of too many technical features in it, and so on. (b) Physical risk – risk perceived with any physical damage the product may cause. (c) Financial risk – risk perceived with the price that is being paid for the product. Whether one is paying the right price or not, should one spend more on another brand and get better quality, will a credit/debit card information be safe with the retailer, and so on. (d) Social risk – risk associated with social status. The thought, what will my friends, colleagues and relatives think and feel about my purchase. (e) Psychological risk – it’s about how one is feeling about a purchase. (f) Time risk – it is time loss risk. Loss of time in searching information, delayed delivery and installation, product not functioning properly and has to be returned or repaired, and so on. The intensity of any of these types of perceived risks, operating in any customer, will depend upon few factors influencing the customer to take decisions in that context. One of the important factors which affects perceived risk is the consumer’s budget and price of the product. For many customers, budget and price of the product are of great concern and that impacts their level of perceived risk and decision making process. Urgency of need and time available to shop are other factors which affect perceived risk. In case there is urgency of buying the product then the customer compromises easily on the perceived risks involved. Whereas if the customer has lot of time at his disposal then the customer tries to reduce the perceived risk by information gathering. Thus, amount of information available and easy availability is yet another important factor that impacts perceived risks. Number of alternatives available also impacts customer’s perceived risk. More the alternatives more is the confusion in a customer’s mind and thus higher perceived risk. Likewise, a customer’s previous experience and knowledge certainly influences the level of perceived risk involved in decision making.
Reducing perceived risk
Although it may not be possible for any marketer to control and eliminate the perceived risks associated with their products and services, they should work towards reducing the perceived risks of all customers. What best they can do in general, is make more and correct information available easily to customers. Besides, during sales transactions, work on reducing functional risk by ensuring that customers are buying the right product that will satisfy their needs. So, understand a customer’s needs first and offer products accordingly. Address financial risk by highlighting benefits of products, highlight value associated with product, explain utility and hedonic need fulfillment, and ensure safe financial transactions. Reduce time loss risk by speedy transactions, accurate information and quick expert advice when required. Reduce social risks by sharing adequate knowledge about the product, boosting confidence in the product and reinforcement of the fact that the customer has done the right purchase. Psychological risk could be handled best by product demonstration and educating the customer, offer guarantees, showcase testimonials, and convincing on money’s worth in the purchase.
However vulnerable a consumer may be to technological advancements, marketers should focus on managing and reducing every consumer’s perceived risks. Cope with consumer’s perceived risks to succeed
