Category Archives: Purchase Decisions

Factors affecting purchase decisions

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

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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.

Interactive Media Creating a “Pull” Economy

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Compared to printed media, online publications offer several powerful draws.

  • Lower costs of publication
  • Lower cost of consumption
  • Interactivity
  • Choice/variety (an infinite number of channels)

These appeals are causing a far-reaching shift from a “push” to a “pull” information economy. The decline in ad revenues for printed newspapers and magazines is a barometer of this change. People report spending less time with traditional mass media while spending more on interactive media which enables them to find exactly what they want, not only in terms of information, but also in terms of products and services.

People can now find what they want
instead of what someone else wants them to want

As a consequence everything we consume is increasingly customized. A shift to computer-aided manufacturing is creating the ability to mass-customize goods and services. The technology of manufacturing and the technology of communication are converging in a way that allows manufacturers with unique capabilities and consumers with unique desires to find and collaborate with each other.

Push vs. Pull in the Marketplace:
The Changing Balance of Power

As a result, we’re seeing a steady shift in information/goods/services being pulled through the economy by consumers rather than pushed by publishers and manufacturers.

The “push economy” characterized by mass production in the last century anticipated consumer demand. The “pull economy” reacts to it. Small niches of consumers once dismissed by sellers are a growing market force.

You can see this trend in everything from micro-breweries to built-to-order cars and computers, personal publishing, user configurable software, customized clothing and more.

You can hear this trend in everyday language – “me” is replacing “we.” Intellectual freedom is replacing group-think. People still want to identify with groups; they just don’t want to lose their individuality in the process. Interactivity empowers them. It’s no longer about being part of the machine. It’s about controlling the machine.

Anticipating Demand vs. Collaborating with Customers

Marketing today is still about creating products and services that fit into people lives. The shift is from anticipation to collaboration. Instead of trying to guess what the largest number of people want, marketers need to be agile enough to collaborate with customers to create what each wants on demand.

Digital Media and Purchase Decision-Making

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So I got into a debate last month with a friend who runs a very successful Internet marketing company. The subject was purchase decision models.

I argued that before people purchase a brand, they must prefer it. And before they prefer it, they must consider it. And before they consider it, they must be aware of it. The entire process is like a leaky funnel. At each step, a certain number of people fall away.Sales Funnel

My friend argued that the only things that mattered in his world were finding the right key words, optimizing web content for search engines, obtaining the top spot on page one of search results, and funneling leads to people who could close the sale. Who was right? We both were.

Awareness

There’s no argument that being the first brand people see when they begin to shop is a huge advantage. (It’s called awareness.) Being first in a Google search is like being at eye level on an end-aisle display in a grocery store, or placing your ad on the inside front cover of a magazine. You virtually guarantee people will see you. But that’s no guarantee people will buy you. You have only gained awareness.

Consideration

In most product categories, people consider three to five choices. They compare prices. They assess performance, risk, value, convenience, and many other factors. Finding the right key words for SEO is very similar to finding the right words to put on a package or in a headline. In all cases, you highlight the benefits most important to a specific target audience. The objective is to get on the prospect’s shopping list – to make them consider you. But success at this stage still doesn’t guarantee a sale. Every organization has competition. You still have to become the preferred alternative.

Preference

Becoming the preferred brand among those considered requires the customer to see your brand as the best fit with his or her needs. When prospects use search engines, they are essentially defining their needs. For instance, they may be looking for a “safe compact car under $20,000.” Search engines help sort options the same way that shoe leather and shopping trips do. “Optimizing” the pitch for a specific audience is always necessary to become the preferred choice. Before search engines, the words we used for optimizing were “market segmentation” and “targeting.”

Purchase

What it takes to win a sale varies by industry. In many, it is crucial to funnel leads to sales people. In others…not so much. Regardless, making the sale is always the final objective in the process and the amount of sales will vary relative to success of efforts earlier in the process.

Purchase Decision Process

In retrospect, I think my friend and I were arguing over semantics. I was talking about a general process. He was talking about how a specific tool worked within the context of that process.

The Internet is somewhat different from mass media in that it can simultaneously be a channel for communication, sales and distribution. Regardless, the steps that consumers or businesses go through in deciding which brand to purchase remain basically the same.

The question is not “Is awareness necessary?” The question is “How will we build awareness?” Any business leader who thinks awareness is not necessary in the Internet Age is limiting his/her potential.

The question is not “Can we skip the consideration and preference phases and send prospects straight to sales people or an order button?” If people want to consider several brands, they will. It’s important for companies to provide enough information to enable prospects to evaluate the alternatives.

Even though the technologies of selling change constantly, buyers never do.

Digital media primarily affect the efficiency with which marketers can reach people, present information and take orders.