Reducing Fear and Uncertainty

Let me give you a hypothetical illustration. You have a choice between two mutually exclusive investments. The first offers a guaranteed 3% return. The expected value of the second investment is 6.25%, more than double the first. It has 75% chance of returning 25%. However, it also has a 25% chance of losing 50% of your investment.

Which one do you choose?

If you picked the first one, you are in the majority. Physiologists tell us that the fear of losing what we already have is a powerful motivator. You picked a “sure thing” because the second investment’s higher expected value was not enough to overcome your fear of an uncertain outcome. In other words, you are risk adverse!

The same predisposition toward risk aversion applies to most consumers. Every business must recognize the fear of uncertainty, especially when marketing to new consumers or offering new products or services. Why, for example, would a prospect buy from you when they already have an existing relationship with your competitor?

You are the “uncertain outcome” in our investment example.

Uncertainties instill a level of customer distrust. Starbucks CEO Howard Schultz explained the reason for this distrust. “In the 1960s, if you introduced a new product to America, 90% of the people who viewed it for the first time believed in the corporate promise. Forty years later, if you performed the same exercise less than 10% of the public believed it was true. The fracturing of trust is based on the fact that the consumer has been let down.”

Your challenge is to overcome distrust and risk aversion. This week, I will discuss several ways to help you meet that challenge. Here are today’s suggestions.

1. Perhaps the ultimate way of overcoming customer perceptions of risk and uncertainty is simply by building a solid reputation for post-sale customer service. American author and motivational speaker Zig Ziglar said, “Statistics suggest that when customers complain, business owners and managers ought to get excited about it. The complaining customer represents a huge opportunity for more business.”

Statistics do indeed support Mr. Ziglar’s comment. The White House Office of Consumer Affairs reports that the average dissatisfied consumer will tell between 9 and 15 people about their experience. Approximately 13% will actually tell more than 20 people. Compare those prospects to the results of a survey by Lee Resources. They found that 70% of complaining customers would do business with you again if you resolve the complaint in their favor. Fully 95% will do business with you again if you resolve the complaint immediately.

2. We have all ventured out of our culinary shell from time to time and took a risk by ordering a new entree or dessert, only to discover we hated it. Ice cream shops have found a cheap yet completely effective way of eliminating this risk. They offer free samples on tiny plastic spoons. The sample (including the spoon) costs less than two cents. Supermarkets hand out free food samples in little plastic cups. Wine tastings accomplish the same objective.

Free samples, or alternatively a free trial period, may be the best way to encourage customers to try new products or services without the fear of having to pay for something that does not meet their needs or tastes.

On Wednesday, I will discuss money-back guarantees. Stay cool until then!

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