Perceived Risk

What influences a person’s decision?

Well, there are many things that influences the decisions someone makes – their environment, the context, their social influences, their background, their personality, and so on.

But one thing that has a rather larger influence on the decision a person makes is perceived risk. And this is the same thing that influences consumer buying choices. By better understanding perceived risks, you can become a better marketer and leverage your products in a way that allows you to control consumer behaviour, to some degree.

Let’s start off with what perceived risk is all about…

Essentially, perceived risk is “The uncertainty that consumers face when they cannot foresee the consequences of their purchase decisions.”

There are a number of categories of risks associated with perceived risks, including:

• Functional risk – product will not work as well as expected
• Physical risk – product may not be safe
• Financial risk – product will not be worth its cost
• Social risk – possible social embarrassment as a result of the purchase
• Psychological risk – risk a poor product choice will impact on consumer’s self esteem
• Time risk – amount of time spent in product search will be waste  if the product does not perform as expected.

Consumers generally attempt to handle risk by seeking information and reassurance. As a marketer, you can leverage this point and influence consumers by lowering their perceived risk. There are also a number of other things you can utilise as a marketer to reduce the perceived risk of a product or service, including: direct marketing, promotional strategies, pricing, branding, channels utilised and target markets, among others.

Be creative! Reducing the perceived risk of a product or service may really cause people to change their mind and buy your product or service. But to do that, you have to really get in the head of the consumer and understand the differing types of perceived risk.