Insight #22: Integrate Risk Lowering Strategies

As a general rule, buyers don’t consider “lowest price” as their highest, most important priority when purchasing products and services. You can verify this fact by noticing that not everyone drives a Geo Metro or an entry model Hyundai. Did you know that in any given supermarket, Coke and Pepsi combined outsell the store brand cola by a margin of about 12 to 1?

And unlike cars, there just isn’t that much difference between Coke and Big K Cola or Pepsi and Safeway Cola. People don’t necessarily want low price...they want low risk. Let’s say you’re taking a road trip and you want to eat lunch. You come to an exit in the middle of nowhere with a Bob’s Burger Barn on the right side of the highway and a McDonald’s on the left side. Where do you go? You drive back over to the other side of the freeway to get to the McDonald’s. Why? You may not particularly like McDonald’s. But, at least you know what to expect because there’s high continuity in the level of food quality throughout the McDonald’s chain. With that in mind, it’s very low risk to eat there. (The devil you know is better than the devil you don’t know!)

Is there anything wrong with store brand soft drinks? They might be really good or they could be terrible! Who knows? From the customer’s perspective, it’s only 85 cents more to get the national brand, and everybody likes the national brand. Who knows what the off-brand tastes like. Moreover, maybe friends will laugh at you for drinking Hippity Hop Hy-Top Lemon Lime Soda. All of a sudden, Sprite seems really OK at only 85 cents additional.

When it comes to your business, you’re more likely to be perceived as the Bob’s Burger Barn of your industry than the McDonald’s. That’s not an insult. You might actually be much better and have a better Inside Reality than the McDonald’s in your industry. But, the customer doesn’t know that. It’s a high-risk situation for new prospects to try you out. And, just in case you think your business is the recognized leader in your industry, then you obviously already have the lion’s share of the marketplace and you have all the business you want. But the cold fact is this: There’s always somebody out there who thinks one of your competitors is better than you are. And, most businesses, especially those like Bob’s Burger Barn, figure that they ought to get their fair share of business just by sticking their sign up on the road with the combo meal specials on the marquee.

Here’s a story about a business executive who was in the market for a new phone system. He did his research and found a company that sold a well-known product he felt comfortable with. Even though it cost what seemed to be a lot of money for a phone system, it was still within his budget. You’re probably aware that a sophisticated business phone system is not something you order out of a catalog. There’s a fair amount of planning that goes into getting everything squared away and ready to install.

He went through the process of negotiating, evaluating, planning until finally had just about all the details worked out and was ready to proceed with the purchase. Right at that point, a sales rep from a competing company, who also happened to be a customer, called and asked if he could provide a bid on the phone system. He came recommended by an employee, so was given a chance to stop by and introduce himself. The executive, upon arrival of the sales rep, was so shocked, he thought he was meeting the missing identical twin of Rodney Dangerfield.

The rep had the same goofy look on his face as Rodney, plus the wide collar Hawaiian shirt, and heavy gold chain necklace to complete the look. He looked as if he were late for a gig in a sleazy Las Vegas lounge. He mentioned that he appreciated the chance to bid on the phone system and that if he couldn’t beat the other companies’ prices by at least 30%, the executive shouldn’t even consider doing business with him. Out of politeness, the executive consented to his faxing a proposal the next day. The next day the fax came.

It was a quote for a different brand and, sure enough, it was about 30% less than the original vendor’s. So which vendor do you think ended up getting the business? It wasn’t the Rodney Dangerfield look-alike. It was the original vendor, whose system cost 30% more. Why? The risk was too high to go with the unknown. There was simply too much doubt about a system that’s a whopping 30% less expensive than the going rate for comparable, well-known brands. For something as critical as a business’ telephone system, taking a chance to buy an off-brand was not worth the risk.

This doesn’t mean that you business is weird if you’re selling off-brand stuff. It’s merely a story to make a point about people’s aversion to risk. Because mixed messages predominate the market place (the Confidence Gap), a customer doing business with you - particularly for the first time - accepts a certain amount of risk. In your business and in your advertising, the best way attract new prospects is to lower the risk.

Some time ago, there was a business that sold a non-insurance health benefit card program that would allow a participant to receive substantial discounts on dental, vision, and prescription services. At the time, they sold the card for about $150 for the year. Hardly anyone bought it. The sales agents complained and complained about how nobody wanted to buy their “lousy card”. Their advertisements got almost no response. Well, that lousy card was actually a very good deal if people would use it. Members could save $300 to $800 a year depending on their use.

Prospects were typically given about 15 minutes to listen to an agent sell the card and then make a decision. That was too brief. Instead, prospects should have been given the card for 30 days FREE use. Savings were usually over $25 to $30 per use and could easily add up to over a hundred dollars on the very first time. A Case should have been made to show that the card virtually paid for itself, especially if the FREE offer had been made. But without the FREE offer, prospects resisted and came up with all the reasons why financially it wouldn’t work and why they couldn’t do it.

Shortly after that company quit the business, one of their competitors was indeed giving away their card free for a month. It turns out they were converting prospects to customers, selling tens of thousands of new cards a month, because the price of entry for the customer was very low risk, in this case, no risk.

First, put yourself in your prospect’s shoes - a prospect who’s never even heard of you - and take a quick look at your advertisements. What is the risk in calling you? What’s the risk in doing business with you? Are they afraid that if you find out their name and phone number, you’ll send salespeople calling all the time? What can you do to lower the risk? Is there some way you can get the prospect to experience your product or service before he has to commit to buy?

Can you offer a special guarantee or provide a warranty for the product or service? Can you guarantee the product or service for a longer period of time than you do now? Is there more information you can give ahead of time to help your prospect make an intelligent decision? Can you provide guidelines (such as in a free report) as to what to look out for when buying in your industry...regardless of whether or not he or she buys from you? Can you lead your prospect to a website?

Here’s the main point: Lowering the risk factor is an absolute must if you want to engender confidence with your prospects. And when you solve the risk factor, you’ll get paid really well for it.

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