The final issue of relevance to branding to be considered today is the concept of perceived risk. Earlier parts showed that products and services can be conceived as arrays of clues and that the most-consulted clue when making a brand choice is the presence or absence of a brand name. This reliance upon brand name is also confirmed by the considerable volume of consumer behavior research on the concept of perceived risk. It is clear that, when buying, consumers develop risk-reducing strategies. These are geared to either reducing the uncertainty in a purchase by buying, for example, only advertised brands, or to minimizing the chances of an unpleasant outcome by buying, for example, ‘only previously tried brands.
It must be stressed that we are talking only about consumer’s perceptions of risk rather than objective risk, since consumers are only as they perceive situations. Whilst marketers may believe they have developed a brand that is presented as a risk-free purchase this may not necessarily be the perception consumers have. Consumers have a threshold level for perceived risk, below which they do not regard it as worthwhile undertaking any risk-reduction action. However, once this threshold level is exceeded, they will seek ways of reducing perceived risk
By viewing risk as being concerned with the uncertainty felt by consumers about the outcome of a purchase, it is possible to appreciate how marketers can reduce consumers’ risk in brand buying. For example, appropriate strategies to reduce consumer’s worries about the consequences of the brand purchase would include developing highly respected warranties, offering money back guarantees for first time trialists and small pack sizes during the brand’s introductory period. To reduce their uncertainty, consumers will take a variety of actions, such as seeking out further information, staying with regularly used brands, or buying only well-known brands. Marketers can reduce concerns about uncertainty by providing consumers with relevant, high quality information, by encouraging independent parties such as specialist magazine editors to assess the brand, and by ensuring that opinion leaders are well versed in the brand’s potential. For example, by tracking purchasers of a newly launched microwave oven brand, using returned guarantee cards, home economists can call on these innovative trial lists and, by giving a personalized demonstration of the new brand’s capabilities, ensure that they are fully conversant with the brand’s advantages. This can be particularly effective, since early innovators are regarded as a credible information source.
The favored routes to reduce risk vary by type of product or service and it is unusual for only one risk-reducing strategy to be followed. It is, however, apparent that brand loyalty and reliance on major brand image are two of the more frequently followed actions. When consumers evaluate competing brands, not only do they have an overall view about how risky the brand purchase is, but they also form a judgment about why the brand is a risky purchase. This is done initially by evaluating which dimensions of perceived risk cause them the most concern. There are several dimensions of risk. For example –
- Financial risk – the risk of money being lost when buying an unfamiliar brand performance risk – the risk of something being wrong with the unfamiliar brand.
- Social risk – the risk that the unfamiliar brand might not meet the approval of a respected peer group.
- Psychological risk – the risk that an unfamiliar brand might not fit in well with one’s self image.
- Time risk – the risk of having to waste further time replacing the brand.
If the marketer is able to identify which dimensions of perceived risk are causing concern, they should be able to develop appropriate consumer-orientated risk-reduction strategies. The need for such strategies can be evaluated by examining consumers’ perceptions of risk levels and by gauging whether this is below their threshold level. It should be realized, however, that the level of risk varies between people and also by product category. For example, cars, insurance and hi-fi are generally perceived as being high-risk purchases, while toiletries and packaged groceries are low-risk purchases.
