The Importance of Properly Assessing Risk in the Purchase Decision Cycle when Developing and Placing Advertising

shutterstock_86919787The rise and fall of mediums affect the ways people assess risk when purchasing products and services.

I have long believed that the worst advertising any company can have is unhappy customers. It’s very important that companies get their products and services into the hands of people who will have a good experience with them. That requires understanding the types of risk that potential customers face.


Four Types of Risk

People always judge products and services, in part, by the amount of risk that the purchase involves. Risk falls into four categories:

  • Price risk = “Will this ruin me financially if the product/service doesn’t work?”
  • Performance risk = “Will this product/service do what I need it to do?”
  • Social risk = “What will other people think of me because of this decision?”
  • Self-image risk = “What will I think of myself because of this decision?”

Every purchase decision has a distinctive risk profile. The nature of this profile affects the form, content and placement of communication. The higher the risk, the more important things like trust, credibility, reassurance, warranties, recommendations, reputation, past experience, and relationships become.

Large industrial or business-to-business purchases, such as a new plant or production line, have huge price and performance risks. Therefore, committees often make decisions. Because of this, social and self-image risks escalate as well. Bad recommendations can ruin careers.

Consumer automobile purchases also rank high on each type of risk.

The choice of a medical provider and hospital for coronary artery bypass surgery can have extremely high price and performance risk, but social and self-image risk may be negligible.

A person’s choice of clothes may have high social and self-image risk, but little price or performance risk.

Impulse purchases, such as candy or ice cream, have very little risk of any type. This is why people buy them almost without thinking.

Meeting Customer Expectations

When developing content for an advertisement, copywriters and art directors must properly address the type(s) of risk that the reader will most likely feel. Failure to properly articulate the degrees and types of risk that the reader is feeling will result in objections that torpedo the sale. Worse, it could result in unhappy customers that kill the brand.

Risk assessment affects message placement as well as creative development. Certain mediums are better vehicles for addressing certain types of risks.  For instance, addressing performance risk may be easier in television than print because video lends itself to product demonstrations. Likewise, addressing social risk may be easier on the Internet than other mediums because of social networks.

The feedback that the Internet gives companies helps them design products that better meet the needs of users. It also helps them better understand customers and match products with market segments based on risk profiles.

Risk of Not Considering Risk

For advertisers, the risk of not considering risk in message creation and placement is irrelevance, lost sales, and brand vitality.

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