Perceived risk is that level of risk a consumer believes exists
regarding the purchase of a specific product from a specific retailer,
whether or not that belief is factually correct.
In order to make a sale, you must overcome the customer's perceived risk. The more important the purchase is to the customer, the greater the perceived risk. Therefore, if a customer is considering buying sweet corn for dinner tonight, the perceived risk is relatively low. If he or she is buying corn because the boss is coming over for dinner, the perceived risk goes up. Perceived risks are also greater if the customer has not dealt with you as a retailer before. New or unbranded items, like produce, also raise perceived risk.
As the cost of an item goes up, so does the perceived risk. Being on a tight budget, having little experience in purchasing the item and having many alternatives to chose from all raise perceived risk.
There are six types of perceived risk:
Functional - Will the product perform as I expect? If the customer is buying sweet corn, this means, "Will this corn be as good as what I remember from last year or what I had last week?" If the customer is buying petunias, the risk is, "Will they make my garden look the way I want it to look?"
Physical - Can the product hurt me, my children or my pets? The use of pesticides in the production of food crops is frequently the concern here, but ornamentals that bear poisonous fruit can also be a concern.
Social - What will my peers think? If customers are buying sweet corn to eat in the privacy of their home, the risk here is low. If they buy petunias and plant them in the front yard and petunias are socially out this year, it's like having a big sign in your yard for five months saying, "geek lives here".
Psychological - Am I doing the right thing? This can be a strong motivator in plant sales for the environ-mentally concerned or an impossible obstacle for the truly paranoid.
Financial - Can I afford the purchase? This is not a major problem for most people buying sweet corn or petunias. It is a major obstacle for customers consider-ing a specimen plant or flowering trees that may cost $60 to $100.
Time - How much time and effort may I expend to make this purchase? This may be
the greatest perceived risk for the plant and produce retailer to overcome. Picture your potential customer in their car thinking, "Do I want to pull into that crowded parking lot? Do I want to stand in that line for a dozen ears of corn?" This is scary! Many of the stands I visit fail to overcome this perceived risk. Their potential customers drive by.
What do you do to overcome perceived risk? You encounter examples every day. Why is a new car guaranteed for three years or 36,000 miles? This guarantee helps overcome the customer's functional perceived risk. Why does the MacDonald's sign say billions and billions sold? It reassures the customers that the food will taste like they expect it to, it won't hurt them and it's socially acceptable. The customer feels that he or she must be doing the right thing, because everyone else is doing it, too. Why do super-markets have express check outs? These special facilities make the customer think that the time risk is low.
In our roadside stands and garden centers, we can guarantee produce quality or the survival of costly perennials. We can reassure the customer our produce is fresh and pesticide free (if it is) or picked today. We can give personal endorsements, like a sign that says "Sweet Corn-Best of the Season" or "Beefsteak Tomatoes-Bill's Favorite". We can display information about the nutritional value of fruits and vegetables or the environmental value of planting a tree or flowers. Most of all, we can watch for the hesitant customers and give them an encouraging word. After all, they are only concerned about perceived risks.
In order to make a sale, you must overcome the customer's perceived risk. The more important the purchase is to the customer, the greater the perceived risk. Therefore, if a customer is considering buying sweet corn for dinner tonight, the perceived risk is relatively low. If he or she is buying corn because the boss is coming over for dinner, the perceived risk goes up. Perceived risks are also greater if the customer has not dealt with you as a retailer before. New or unbranded items, like produce, also raise perceived risk.
As the cost of an item goes up, so does the perceived risk. Being on a tight budget, having little experience in purchasing the item and having many alternatives to chose from all raise perceived risk.
There are six types of perceived risk:
Functional - Will the product perform as I expect? If the customer is buying sweet corn, this means, "Will this corn be as good as what I remember from last year or what I had last week?" If the customer is buying petunias, the risk is, "Will they make my garden look the way I want it to look?"
Physical - Can the product hurt me, my children or my pets? The use of pesticides in the production of food crops is frequently the concern here, but ornamentals that bear poisonous fruit can also be a concern.
Social - What will my peers think? If customers are buying sweet corn to eat in the privacy of their home, the risk here is low. If they buy petunias and plant them in the front yard and petunias are socially out this year, it's like having a big sign in your yard for five months saying, "geek lives here".
Psychological - Am I doing the right thing? This can be a strong motivator in plant sales for the environ-mentally concerned or an impossible obstacle for the truly paranoid.
Financial - Can I afford the purchase? This is not a major problem for most people buying sweet corn or petunias. It is a major obstacle for customers consider-ing a specimen plant or flowering trees that may cost $60 to $100.
Time - How much time and effort may I expend to make this purchase? This may be
the greatest perceived risk for the plant and produce retailer to overcome. Picture your potential customer in their car thinking, "Do I want to pull into that crowded parking lot? Do I want to stand in that line for a dozen ears of corn?" This is scary! Many of the stands I visit fail to overcome this perceived risk. Their potential customers drive by.
What do you do to overcome perceived risk? You encounter examples every day. Why is a new car guaranteed for three years or 36,000 miles? This guarantee helps overcome the customer's functional perceived risk. Why does the MacDonald's sign say billions and billions sold? It reassures the customers that the food will taste like they expect it to, it won't hurt them and it's socially acceptable. The customer feels that he or she must be doing the right thing, because everyone else is doing it, too. Why do super-markets have express check outs? These special facilities make the customer think that the time risk is low.
In our roadside stands and garden centers, we can guarantee produce quality or the survival of costly perennials. We can reassure the customer our produce is fresh and pesticide free (if it is) or picked today. We can give personal endorsements, like a sign that says "Sweet Corn-Best of the Season" or "Beefsteak Tomatoes-Bill's Favorite". We can display information about the nutritional value of fruits and vegetables or the environmental value of planting a tree or flowers. Most of all, we can watch for the hesitant customers and give them an encouraging word. After all, they are only concerned about perceived risks.
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