Doing Business with Your Company

By Ed Alexander

Minimizing customers' perceived risks can maximize profits.

According to Ron Baker, author of the book “Implementing Value Pricing,” customers face seven risks when buying products and services. As a result, understanding those risks is critical to business success. In other words, if you want to turn a prospect into a customer, you have to lower that prospect's perceived risk of doing business with your company. And companies with perceived customer risk that is lower than the competition’s can charge a premium price.

So what risks do customers face when doing business with you?

 

1. Performance risk: The customer doesn't get the outcome that was the reason for the purchase.

2. Financial risk: The customer loses money if the purchase fails or pays a price that is greater than the value received.

3. Time risk: The customer loses time if the purchase fails.

4. Opportunity risk: Another company may provide the customer a better product or service.

5. Psychological risk: The purchase doesn't fit the customer's self-view.

6. Social risk: The purchase isn't approved by the customer's social circle.

7. Physical risk: The purchase might cause physical harm to the customer.

 

Of course, not all products and services will have all these risks. But most, if not all, will have the first four.

Each business owner should consider and address all these risks in marketing materials as well as product or service offerings. For example, providing a money-back guarantee with specific performance parameters addresses performance, financial and opportunity risks.

One big benefit of considering and addressing each risk is the ability to charge a premium price. Because the customer perceives the risk of working with you to be lower than that of working with your competitors, you will have differentiated your business and made price just one factor, not the only factor.

Understanding and addressing the perceived risk of doing business with your company will help you grow your business both in the number of customers (transactions) and in the value of each purchase.

If you want to turn a prospect into a customer, you have to lower that prospect's perceived risk of doing business with your company. And companies with perceived customer risk that is lower than the competition’s can charge a premium price.

Tags: E-Corner, Entrepreneurship