Using Risk Reversal To Build Your Business
Whenever any two parties come together to transact business, one side is always asking the other to assume most or all of the risk. That's a simple fact of business. The problem is, when the person who must assume the risk happens to be your customer, the natural inclination is to hesitate, to be suspicious and uncertain, to not buy.
What makes them hesitate? They're concerned that once they've paid you their hard-earned money, your product will not perform or your service will not meet their expectations. They may also be afraid of looking foolish or being embarrassed if the purchase doesn't turn out right or sound or astute.
In the end, your prospect's decision whether or not to buy will be motivated by two things: (1) their confidence in your product or service, and (2) the level of risk (consciously or unconsciously, explicitly or implicitly) you are asking them to shoulder in the transaction. These two factors are often inversely related: Lowering the level of risk for the buyer can increase the level of confidence.
Your challenge is to figure out the best way you can reduce or eliminate the element of risk or fear on the part of the buyer. Take away the risk, and you lower the barrier to action - you make it easy to say yes. And if your selling proposition carries less risk than your competitor's, customers not only will be more inclined to say yes, they'll be much more likely to buy from you over the other guy.
Three Ways to Reverse Risk
So, how exactly do you reverse risk? It's important to realize that risk reversal is a promise to your customer: "If you're not happy, I'll do whatever it takes to make you happy." Most companies that use risk reversal offer a simple money-back guarantee. That's one way to do it, but there are other, even better ways.
Although the number of potential risk-reversing offers is limitless, there are three basic types:
1. Total monetary risk reversal: The most common type of total risk reversal is the moneyback guarantee, in which the seller promises to refund the buyer's money should the product or service not live up to expectations. A stronger (and more advantageous) variation is the "free trial" offer, in which the buyer does not spend any money up front. Instead, the buyer pays only after he or she has received, examined, and evaluated the product or service over a period of time (e.g., 30 days).
If you offer a risk-free guarantee in your business or you're thinking of adopting one, let me stress the following advice: Denominate what you're guaranteeing. So many businesses simply say, "Satisfaction guaranteed or your money back," or "You don't pay unless you're satisfied." But what does that mean?
The problem with these generic statements is that you force the customer to figure out what "satisfaction" should look like. It's much more effective to dimensionalize exactly what the customer can expect from the product or service. Speak in terms of specific performance measures.
For example, suppose you're selling vitamins or some kind of nutritional supplement. Don't simply say to your customers, "Your satisfaction is guaranteed - or your money back." Instead, say, "If you buy a 60-day supply of this vitamin, we fully expect you to feel more energy, focus at a higher level, lower or eliminate altogether your sense of anxiety or stress, sleep more soundly, think more clearly, and work more productively - getting more things done in four hours than you used to get done in a day. If that doesn't start occurring before the 60th day of diligently using this regimen, you are fully entitled to a complete refund."
Do you see how much more concrete that is? You have denominated the outcome. You have painted a vivid picture in the mind of the prospective customer of exactly what satisfaction should look like. Specifics such as these will give your guarantee credibility and measurability - and make your business stand out in the process.
2. Better than total risk reversal: In this approach, the seller not only guarantees a complete refund if the buyer is dissatisfied, but also offers a bonus incentive that the buyer retains even if he or she seeks a refund. The bonus is usually a product or service that complements the primary focus of the transaction, although it could be something totally different.
For example, a magazine publisher may offer a duffel bag or camera as a bonus gift with a paid subscription. If the subscriber opts to cancel, he or she receives a full refund and also keeps the gift. The customer is given the privilege of keeping the bonus in exchange for their time, consideration, and efforts.
The better than risk-free transaction acknowledges and rewards the customer or client for having enough faith to commit to purchase, incorporate, and use your product or service in their life or their business. By adopting a better than risk-free proposition, you dramatically increase the appeal of the offer, because there's a bonus incentive on top of a risk-free deal.
3. Emotional risk reversal: With "emotional" risk reversal, you take steps to increase your potential customer's level of confidence (and reduce their fear) before they purchase. This type of risk reversal is often practiced by businesses and professionals for whom complete monetary risk reversal simply isn't practical.
For example, if you're a Realtor, it may be impossible to offer a 100% money-back guarantee on every house or piece of commercial real estate you sell - but that doesn't mean you can't reverse risk for your clients.
Using an emotional risk-reversal approach, you could urge prospective clients to first contact a dozen or so of your past customers. Your prospects could ask these previous clients about their overall satisfaction with your knowledge, skill, and commitment. By learning this information up front, your potential client gains confidence in you and faces substantially less risk than if he or she knew nothing about you.
Posted January 31, 2005
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