There are only a few reasons why someone would pay money for something. Most of the time it is to scratch an itch. They seek to exchange a value (cash) that they have, for a value that your product proposes (solving their problem).
Here’s where things get interesting. Before making a decision, you can expect customers to perform risk assessments on your product. I have noticed that the time spent on these assessments (otherwise known as product research) is related to their perceived risk of the product.
It could be a conscious or subconscious act but it happens all the same. Some purchases take a couple of seconds, while others can span months or even years.
Furthermore, individual customers have their own perceptions depending on their individual circumstances. Here are a few different ways that can cause perceived risk to increase.
There is a correlation between the perceived risk and the importance of the purchase. A simple example, if a customer is thinking about what to eat for dinner tonight, the perceived risk is pretty low. If he/she is taking a date out to dinner, the perceived risk increases. It’s also pretty obvious that the perceived risk will increase further if it’s a first date.
Perceived risk can also increase if the customer did not have any prior relationship with you as a provider or retailer. New or innovative products and unfamiliar brands can cause scepticism and increase perceived risk.
Price of a product or service and having many other alternatives to choose from can also increase perceived risk.
There are 5 factors which contributes to the total perceived risk that affect software as a service products. They are namely functional, social, psychological, financial and time. Together, these factors contribute to the customer’s decision making process. We’ll take a look at some of these factors as well as examples of techniques to reduce perceived risk.
Functional. Will the product perform according to expectations? What features does it have?
Provide a free trial or free tier. Customers should feel comfortable taking your product for a “test drive” before committing. If you can’t afford to provide a free trial, maybe consider doing a video demo or a screen cast that will portray the workflow of the product. This way, they would know that the product works before handing over their credit card details.
Social. How would my boss or peers think when they find out?
Getting social proof is a chicken and egg problem. People won’t use your product unless you have enough social proof, and you won’t have social proof until people use your product. The good news is early adopters are less risk averse to this factor.
Testimonials and endorsements by well known people and businesses in your target market can help convince customers too. Social proof is all about the wisdom of the crowd. If enough people say it’s good, it should be good and thus reducing perceived risk. Guest posting on other industry blogs and other outreach efforts will help with awareness.
Psychological. Is this a business I want to support? Does it have the same values as I do? Will it disappear overnight?
The way you communicate with customers reflects your values. That includes everything from the copy on your landing page to the retention emails you send out.
Add photos and short bios of your entire team together with links to their email and social media accounts on the about page. It portrays availability and helps customers put a face to the business.
Financial. Can I or my business afford this product? Is it priced higher than it’s competitors?
Generally, it is hard to beat other products based on price alone. Base your pricing on the value that your ideal customer will receive. Paying $99 per month to solve a real business pain would not be an issue for many businesses.
Time. How much effort do I have to put in to switch over to this new product?
Always guide a new user with an on-boarding process. Explain features and point out important links in the product. The ideal on-boarding process would walk a user through the product all the way until the “aha moment”.
You can also make it super easy for customers to switch to and from your product with one click importing and exporting of data. Examples include blogging platforms such as Wordpress or Tumblr.
By working through these factors, you can reduce perceived risk for your product or service. Making it less risky for the customer to choose you.
I would love to hear and discuss techniques that work for you. If you need help reducing perceived risk on anything (from my point of view), feel free to reach out.
Photograph is of Blue Mountains, NSW, Australia. It’s about an hour or two west of Sydney.
Published on 21 Apr 2014 by Stanley Tan
| Stanley Tan |