Brand choice is about prediction. Will the brand deliver on its promise? While a brand could deliver many things, rarely is anything certain. This lack of certainty is the choice risk. This uncertainty is a driver of many of their emotions during and after making a decision. While a consumer may not always voice their choices in terms of managing risk associated with uncertainty, we see it in their behaviour; we see it in their brand choices, and we see it in how much they are willing to pay. With the right research design, we can uncover insights relating to how they perceive and manage risk to build our brands and business.
One of the original reasons for branding a product is to give potential buyers a guarantee of quality. In other words, it reduced perceptions of risk. A brand that has built an image of quality, often by consistently delivering quality, can command a higher price and market share. This price premium for risk is the amount a consumer feels is worth paying to avoid the possibility of having to spend more sometime later, or in the case of investment and personal education, the return is higher than other options.
Understanding that people avoid risk is a foundation concept of behavioural economics, a stock-in-trade tool of politics, and an important area for getting consumer insights that can help you change behaviour and build your brand.
Brand Building by Understanding Risk
To get consumers to buy, we need to understand what risks they see with the category and our brand. In understanding how consumers think of risk there are two parts: how likely something will happen (or not happen) and the size of the consequence. Where the consequences are large, even unlikely events can drive decisions. Many insurance products and extended warranties are bought on the basis of the consequence rather than the likelihood of an accident. Both the likelihood and the possible consequence may have no grounding in reality. When it comes to risk, perception is the reality and our brand messaging, and product claims can reduce these perceptions.
Understanding Your Decision Risk Profile
To find insights into consumer choice, there are six types of risks that affect decision making and brand choice: Functional, Physical, Financial, Social, Psychological, and Temporal. Different categories will having different risk profiles of which risks drive decisions and how they drive a decision. Similarly different brands, customer segments and at different stages in the customer journey are also likely to see risks differently. More than one type of risk is likely to affect decision making for your brand, with risks interacting.
Outlined below are the six types of risks and examples of how they affect consumer choice.
Functional Risk: Will it work?
This is the most basic of risks a consumer faces and ranges from a product not working at all through to not meeting their expectations. Another way of thinking about this risk is Benefit-Risk. Will the product deliver the benefits they want? This risk is particularly an issue for new brands, new categories, or where use is complex, and results are also dependent on others. For example, a student considering a course or provider may consider the risk of not getting into a career of their choice or getting the right qualification to practice. Likewise, when we buy a cake mix we will weigh up the likelihood that we can make a passible cake.
Physical Risk: Will I get hurt?
This is the risk of direct or indirect injury from using or accessing a product. Perceptions of physical risk can elicit the powerful emotions of fear. While tempting to think this type of risk only applies to a small number of categories, like health and physical activity-based products found in tourism, it is surprising how many choices are affected by this type of risk. Physical risk often only becomes obvious when something goes wrong. For example, airline choice after a crash, foods after a food poisoning outbreak, and education provider choice after student assaults. In public transport, the physical risk from assault is sometimes given for not using public transport at certain times and places.
Financial Risk: How much will I lose?
Financial risk covers both losing money and not getting the return you expected. Financial risk is often closely linked to Functional Risk. For investment products, financial risk is front and centre of the product and brand proposition. For non-financial products financial risk can relate to the possibility of paying more than needed or having to spend more because the product failed to perform and they had to buy something else. The phrase ‘you get what you paid for’ captures one of the ways consumers manage financial risk.
Social Risk: Will I look Foolish?
We are social animals. We crave social recognition and fear its loss. Losing face, even to strangers, is a powerful driver of behaviour in all cultures. The more publicly visible the buying process, usage or storage, the greater the likelihood that social risk will play an important role in our decision making. For youth, luxury products, and education choices, social risk is a powerful driver of choice. It is not just the desire to be seen with the right brand but the fear of being seen with the wrong one. Even mundane purchases like family groceries can come with risk when the wisdom of your choice is questioned by your partner or children.
Psychological Risk: Will I feel like a fool?
Unlike social risk, psychological risk is about what we think of ourselves if we make the wrong choice. This risk may be strong when we are considering a repeat purchase or increasing the number of other products we have with a company when the first time we used them had not gone well. A person who is trying to quit or lose weight will look at ways to justify to themselves why the next time is different and using the same approach or brand is not foolish.
Time Risk: Will this put me behind?
Time is a precious resource and having to repeat something because it did not work or things take longer than expected is a risk for both consumer and business decision-makers. Time risk is similar to financial risk, in that time is an investment people make in the decision and product use. When we are time-poor, when there is a significant investment of time, or when we are unable to make up for lost time, time risk can become the dominant driver of choice.
How to Find Decision Risk Insights for Your Brand
When looking for insights into how to overcome or leverage risk perceptions for your brand both who you interview and your question framework are important. Since risks perceptions are a barrier to change, you need to ideally speak with those are actively in the market and those who have recently made a decision. Depending on your strategy and category, you should also consider having a representation of consumers with different usage patterns to understand if certain types of risks become more important at other stages.
When interviewing or observing, there are four questions we need to answer.
- Which risks drive brand choice?
- How do consumers manage each type of risk?
- What is the basis of risk perceptions, and how real are they?
- How do perceptions of risks vary by different consumer segments and experiences with your brand?
Different research techniques can help to uncover risk perceptions. In some cases using the different risk types as a guide and using direct questioning about barriers to change are enough. However, consumers are not always aware of their own motivations, which requires more indirect measures or experimental designs to uncover the needed insights.
Increasing sales and improving brand image requires more than just understanding what benefits consumers want; we also need to understand how they see the risks to what we promise. More than one risk is present for many choices, and how consumers see these risks will affect the brand choice and willingness to change. Understanding these risks requires seeing choices from the consumer’s perspective so we can learn what is important to them and how to improve our offer and performance.