Buying Behavior: How Consumers Handle Perceived Risk
What is Consumer Perceived Risk. Definition
Perceived risk is defined as the uncertainty that consumers experience when they can not foresee the consequences of their purchase decisions. it is the uncertainty a consumer is feeling when buying items, especially expensive products.
Perceived Risk by Consumers versus Actual Risk
Perceived risk is different from actual risk in that PERCEIVED RISK is the predicted, assumed, felt, experienced risk in the consumer's mind (which can be but is not necessarily real) while ACTUAL RISK is the fundamental, underlying, real risk.
Types of Risk Perceivers among Consumers
- High risk perceivers
These are consumers who limit their product or service choices to a few safe alternatives. These are also known as narrow categorizers.
- Low risk perceivers
These customers tend to make their choices from a wider range of alternatives. This group is known as broad categorizers.
Types of Perceived Risk by Consumers
Consumers perceive the following risks when making purchase decisions especially when buying new products or services:
- Functional Risk
Functional risk is the risk that product will not perform as expected. Does the battery of a newly introduced cellphone last long?
- Physical Risk
This is the concern that a product will be dangerous and might potentially harm or injure the consumer or someone else. Does the newly introduced gadget safe or it produce harmful radiation?
- Financial Risk
This risk arises when the consumer thinks about their Return on Investment (ROI). Normally this occurs when consumers are assessing whether the product they intend to purchase is worth its price and whether the benefits of the products outweigh the investment they make.
- Psychological or Social Risk
This is the risk associated with poor product choice that could then affect the ego of the consumer. It is associated with unforeseen consequences if the product or service is or is not consistent with the buyer's sense of self-identity.
- Time Risk
Time risk is associated with time spent in product search. This is the potential loss of time associated with making a bad purchasing decision and time maybe wasted if the product does not perform as expected.
How Consumers Handle Perceived Risk?
Obviously, the mentioned buyer types and their tolerance for risk taking and the degree and types of risk that consumers perceive are factors that influence their purchase strategies. Here are some generic consumer tactics to deal with perceived risks when buying something:
- Seek Information
Consumers seek information about the product and product category through word of mouth (WOM) from people whose opinions they value, through various promotional tools at their disposal or from sales persons. When consumers suspect a high degree of risk they search for more information about product alternatives.
- Stay Brand Loyal
Consumers avoid perceived risks by remaining brand loyal to a brand with which they have been satisfied instead of purchasing a new or untried brands. High risk perceivers are more likely to be loyal to their old brands and less likely to purchase newly introduced products or brands.
- Select by Brand Image
When consumers have no experience with a product, they tend to trust a well known brand name. This gave them assurance of quality, dependability performance and service.
- Rely on Store Image
Store image also provides customers with an opportunity or assurance of return privileges and adjustment in case of dissatisfaction. If consumers have no other information about a product they often trust the judgement of merchandise buyers of reputable store and depend on them to have made careful decisions in selecting the products or services.
- Buy Most Expensive Models
Consumers perceive that the most expensive products or services are probably the best in terms of quality.
- Seek Reassurance
Customers seek reassurance through money back guarantees, warranties, pre-purchase trials for example test drives before closing the car sale deal.
Kindly help to develop this very interesting topic and put your comments below. Thanks beforehand.
Peter P J and Olson J C (2005) Consumer Behavior and Marketing Strategy, 7th Edition, McGraw-Hill High Education
Schiffman L and Kanuk L (2014) Consumer Behavior, Global and Southern African Perspectives, 10th Edition, Pearson Education