January 31, 2005
Using Risk Reversal To Build Your Business
Whenever any two parties come together to transact business, one side is always asking the other to assume most or all of the risk. That's a simple fact of business. The problem is, when the person who must assume the risk happens to be your customer, the natural inclination is to hesitate, to be suspicious and uncertain, to not buy.
What makes them hesitate? They're concerned that once they've paid you their hard-earned money, your product will not perform or your service will not meet their expectations. They may also be afraid of looking foolish or being embarrassed if the purchase doesn't turn out right or sound or astute.
In the end, your prospect's decision whether or not to buy will be motivated by two things: (1) their confidence in your product or service, and (2) the level of risk (consciously or unconsciously, explicitly or implicitly) you are asking them to shoulder in the transaction. These two factors are often inversely related: Lowering the level of risk for the buyer can increase the level of confidence.
Your challenge is to figure out the best way you can reduce or eliminate the element of risk or fear on the part of the buyer. Take away the risk, and you lower the barrier to action - you make it easy to say yes. And if your selling proposition carries less risk than your competitor's, customers not only will be more inclined to say yes, they'll be much more likely to buy from you over the other guy.
Three Ways to Reverse Risk
So, how exactly do you reverse risk? It's important to realize that risk reversal is a promise to your customer: "If you're not happy, I'll do whatever it takes to make you happy." Most companies that use risk reversal offer a simple money-back guarantee. That's one way to do it, but there are other, even better ways.
Although the number of potential risk-reversing offers is limitless, there are three basic types:
Generating Positive Word of Mouth
Companies Get Big Because They Practice Honesty
Not a single company listed in the Fortune 500 (America's largest enterprises) cheats or bamboozles its customers. Companies get big because they practice honesty. Without it, no company can benefit from referrals, one of the truly great well springs of business success. This priceless corporate asset cannot be purchased. It can only be earned. It comes to you from "word of mouth."
Before a consumer buys a product for the first time, some unbiased source has generally conveyed satisfaction with the product. Way back in the beginning, Henry Ford captured market share because people told others about the reliability of his cars. Before people go to a movie or out to eat at a new restaurant, they tend to rely on word of mouth. Products, services and companies alike are judged by these influential verbal verdicts.
People like to be in the know, abreast of trends and on top of new events. Further, they enjoy dispensing these insights to others. They love to give advice and will always rush to help or aid others with information.
Word of Mouth is Critical
This advice about the importance of word of mouth advertising is even more true today now that the Internet has greatly increased the power of people to share their opinions with others.
If it seems I am belaboring this simple truth, it is because word of mouth is so critical to start-up ventures. This is especially true for anything new, where every satisfied customer becomes a salesperson. This indispensable asset far exceeds the benefits from any other form of advertising or promotion.
When companies mistreat or short customers, they beat themselves out of their most powerful helper. Unless you can unleash an avalanche of positive word of mouth, you will never advance beyond middling success and stagnation.
Stanley Marcus was instructed in the entrepreneurial skills by his father, one of the founders of Nieman-Marcus. The young Marcus built the company into a prominent, high-quality chain based on lessons that extended beyond the realm of conventional customer service and integrity. He recounts:
You don't have to compete on price!
There are probably 30 frequently voiced frustrations that I deal with all the time.
Probably the biggest one is from people who are beleaguered and they're just frustrated, because they're relegated to being a commodity by the market and they're forced to compete on price alone. At least that's what they think they have to do.
It probably hasn't always been quite as brutal as it is now, but let me make a clarifying statement. One of the most saddening observations I make of business people in general today is their unwillingness to recognize that change is immutable. Change is going to occur whether you like it or not. Wishing and hoping that it would be like it was in 1996 or 1982 or 1970 brings you no advantage.
Defiantly refusing to meld, or comply, or acknowledge the dynamic changes in the competition and all those other factors in the marketplace, and acting ostrich-like, and burying your head figuratively, and continuing to use the old strategy that doesn't work and working it harder and thinking it's going to work better when it didn't work the first time is delusionary.
My whole recommendation is to realize that change is either your greatest ally or your most mortal enemy. And it has nothing to do with change itself It has everything to do with you and the way you embrace it, the way you capitalize on the action of someone trying to make you into a commodity, which would be to look at the situation entirely differently.
I would look at it and say, "Look, everyone else is being forced to be a commodity. They've resigned themselves to the fact that those are the rules they have to play by.
"You don't have to. You can be a proprietary. You can refuse to just sell 'blank.' You can make your proposition different. You can add other products or services to the transaction. You can make what you do different. You can make the product not be the real value, but the advice or the assistance or the technical expertise that you bring that would cost them a fortune. But it's free if they buy the product from you.
So all of a sudden you're not competing on the same commodity basis as anybody else. And all of a sudden you've got the playing field totally to yourself.
I have a friend who is in the fulfillment business. He works with people who sell all kinds of products by mail, and they ship them all over the country.
34 Ways To Use Direct Mail To Build Your Business
Here, in outline form, are 34 ways to use direct mail and direct-response marketing to build your business:
Mailing To Active Customers
You can try a number of things:
1. Increase demand through suggestions of new uses, personal reminders.
2. Include upsell enclosures on one product or service - they can sell others.
3. Focus on buying habit - reminders, flyers, etc.; keep customers active.
4. Maintain adequate service, which keeps customers active between a salesperson's calls.
5. Pinpoint intensity areas where you want to concentrate on participation and sales.
Mailing To Inactive Customers
6. Inactive-account, concentrated campaigns are very successful in this area.
Mailing To Prospective Customers
My competitor has started a price war! .... What should I do?
"I've got your manual, but I need help!" ...The caller was a lady from a suburban Beauty Salon. She was at her wit's end. The story she related to me was a familiar one. ..The guy down the road is undercutting her like crazy. She can't see how he's surviving at the prices he's charging. SHE certainly couldn't.
She tried to retaliate by running a discount voucher promotion based on the DIY Guide. It worked reasonably well while it was on, but now business has dropped again. "People seem to want lower prices, but I'm barely paying the staff wages at these prices. I'll go out of business unless I do something!"
Well, when the phone call finished, she was happier. Eager to try my suggestion. I'd like to share it with you, as the strategy applies in developing a competitive edge in virtually any business. But I'd like to make some other points too.
Firstly, to caution readers of my materials against skimming through them, then "lifting" ideas - simply copying them.
Secondly, the lady from the Beauty Salon is paranoid about PRICE competition.
Maybe the guy in the other Salon has made up his mind to put her out of business by price cutting. And while she puts so much credence on price, she's helping him do that. But really, how do you put a price on "beauty"? Sure, if you're selling bread or milk, and the guy down the road sells it cheaper, that's where people will go. But people go to a particular Beauty Salon for reasons often far removed from price.
Certainly, unless you are a Vidal Sassoon, you have to be "price comparable". But - that still gives you a fair leeway for setting your own price. The perceived preoccupation with price is more often in the head of the supplier than the consumer.
Falling in love with your clients
Here is a thought that will change anybody's life forever if they write it down, if they utter it every day in the morning, in the noon and at night, and if they live it:
Most people fall in love with their own company, product or service instead of failing in love with their clients and prospects. Your whole business success, your whole passion, your whole connectivity, your whole positioning, the way you are seen, embraced and respected, will change massively when you conceive of your business as interacting and enhancing people or other companies' lives and situations.
Most companies think, when they're trying to sell their product or service, "What do I have to say to get people to buy?" This company believes what they should say is, "What do I have to give? What value do I have to create? What benefit do I have to render?" That's a different take.
This also gives purpose and fulfillment to you. It makes it about ten times more enjoyable to be able to be in the process. Again, keep in mind, I'm talking about it in the context that I deal with the most, which is how a business owner or a professional can gain very much greater preeminence, success, profit, sales, repeat business from customers. However, it is so universal that it applies to how an employee can get more connectivity with their employer, how an employer can get more connectivity with an employee, how a person can get more connectivity and impact and success with a loved one, with a friend, with a neighbor, with a child. It's pretty powerful.
The focus of your concern, your state, your attitude when dealing with the other side (whatever the other side is - a customer, an employee, employer, husband, wife) should always be the non-verbalized communication of the fact that "You matter. Your well being is genuinely and truly and constantly important to me."
