How to profit by taking on more of your customer’s risks

What is the core of the human condition?  If you dig down deep enough you might just find that most of us feel vulnerable and strive for security.  In our social lives we minimise our vulnerability and build up our sense of security by cultivating relationships with people we can trust.  In our business lives we strive to do the same: do business with people and organisations we can trust.

One of the major causes of us feeling vulnerable is uncertainty.  Uncertainty makes us feel uneasy: it exposes us to risk and most of us are risk averse.  Research studies show that most of us will pay a premium to minimise risk – to outsource it to someone else.  The entire insurance industry is founded on this understanding.   Chris Zane has built a successful cycle business through a deep understanding of this principle: he provides a lifetime guarantee!  Zappos have flourished by exploiting this principle: their generous returns policies take the risk (and cost) out for customers.  In return customers happily pay a premium.  This is the reward these companies earn for taking risk out of their customer’s lives.

What am I saying?  People buy products.  People buy services.  People also buy security: peace of mind.   You can build stronger bridges with prospects and customers by taking out risk and replacing it with peace of mindAnd you can make more money!

If you are inspired to provide this peace of mind then might want to make use of some of the insights that Ernest Dichter, consumer behaviourist, came up with back in the 1950s.  He identified that there are at least five dimensions of risk every time someone makes a purchase:

  • Economic – am I wasting my money making this purchase?
  • Functional – will this product work reliably?  Will I get the quality of service I am being promised?
  • Social – what will other people think of me in buying this ‘product’ and doing business with this company?
  • Physical – will this be painful?
  • Psychological – will I think poorly of myself?

When you think about it this way you can get why quality and reliability make such a big impact on customers: quality and reliability makes your customers feel safe.  You can see why good design commands a premium: good design makes us look good in our eyes and in others eyes.  You can see why price counts and why people search out deals: it makes us feel intelligent and good about ourselves.  In the current economic climate price is particularly important as it also gives us bragging rights. 

Now let me ask you two questions.  In your customer experience design efforts what are you doing to take out these risks?  Does your customer strategy make use of risk as a key leverage point?

Author: Maz Iqbal

Experienced management consultant working at the intersection of strategy, customer, and technology. Combine a tendency to think strategically with a penchant for getting my hands dirty at the coalface of implementation.