Break Buying Barriers with Risk Reversal
by Chad Rueffert


There’s a reason it’s called “hard-earned” money.  It takes a lot of work to make money, and consumers have innumerable options on how to spend it.  Nobody wants to make a mistake and waste their money on a product or service that doesn’t fulfill its promises.  That’s why there are over 4 million subscribers to Consumer Reports magazine. 

 

Every consumer or business purchase comes with inherent risks.  Will I get what I paid for?  Will the product live up to the promises made?  What if I find it advertised for less money next week? Will it work with the equipment I already own?  The fewer the risks, the more likely the purchase, which is why it’s crucial for companies to remove as many hurdles as possible for the consumer.  Risk reversal is one of the most powerful and underused marketing strategies available, especially for small businesses.

 

Small business marketers fight an uphill battle every day to lure consumers away from larger, better known competition.  In large part, this is because consumers feel less risk when purchasing a familiar brand.  There’s very little risk in ordering a bottle of Budweiser.  You can reasonably expect that it’s going to taste the same and cost about the same as the last time you tried it.  But what about that microbrew on special?  Sounds interesting, but what if you don’t like it?  You’ve wasted your money. 

 

So what do you do if you’re the sales rep for the ten cases of microbrew getting dusty in the beer cooler at the local watering hole? Take away the risk.  Cut a deal with the bar owner to promise potential buyers you’ll buy them a free Budweiser if they don’t like the microbrew.  Odds are you won’t have to buy many, and even if you do, you’ll at least have realized some revenue instead of none.  You’ve taken all the risk off the consumer and placed it on your own shoulders.

 

Risk reversal is an even more powerful tool when you consider the benefit of repeat customers.  Some of those people who tried your microbrew will actually like it and will even order it again next time.  Jay Abraham, author of “Getting Everything You Can Out of All You’ve Got” puts it this way:  “Acquiring clients at a breakeven or a slight loss and making substantial profits on back-end repurchasing is one of the most overlooked and underutilized methods of client growth and generation available to you…Most businesses and people make it far too hard for clients and employers to start a relationship with them.  They make it too difficult to get prospects to start using their products or services to the maximum advantage.  If you lower or totally eliminate the hurdles in starting a relationship, far more people will begin one with you.”

 

Big companies practice risk reversal all the time.  Zero percent interest rates for the first six months on a new credit card.  No interest financing until 2006 on furniture purchases.  Sleep on our mattress for thirty days and we’ll buy it back if you’re not completely satisfied.  All of these things remove the risk factor and clear away the hurdles to creating a new relationship.  And yet, for some reason, most small businesses are afraid of taking the risk onto their own shoulders, despite the fact that the long-term profit will likely be worth far more than the short-term loss.

 

Take a CPA specializing in personal income tax preparation as an example.  Bob Jones, CPA has ten clients but has time to prepare returns for twenty.  For each return he charges $300.  But he has a hard time convincing people to switch from their current tax preparers to a guy they don’t know.  So this year, he finds ten people and offers to do their taxes for free.  Next year half of them go back to their old tax preparers and half of them pay Bob’s fee of $300.  So, on average, he prepared an additional 15 returns at a price of $100 each or 2/3 off his regular prices.  But those five people may become customers for the next ten years.  It cost Bob $3,000 (in time only) to make at least $15,000.  Think how much he could be making if all ten of those people stick with him!

 

In my experience, the small businesses who are afraid of risk reversal are actually afraid their product just isn’t good enough.  They are afraid people really will want their money back.  But for those who truly believe in the competitive advantages of their product or service, a risk reversal strategy is an excellent way to introduce a new product to market, steal market share from a larger competitor, or simply attract a group of customers who’ve been sitting on the fence.