Perceived risk affects consumer purchasing decisions. Retailers and manufacturers use tactics to lower perceived risk. The greater the purchase, the greater the perceived risk. Perceived risk includes money, time, social/psychological, and physical risks. Gathering more information can weaken perceived risk.
Perceived risk is the potential risk that a consumer identifies or associates with a purchase. People are less likely to make purchases that they perceive as risky and more likely to make purchases that they perceive as low risk. Retailers and manufacturers use a variety of tactics to lower perceived risk and make consumers feel more confident when making a purchase. Understanding the role of this phenomenon in purchasing decisions is an important element of product design, marketing, and sales.
As a general rule, the more complex or large the purchase, the greater the element of perceived risk. The consumer is making a big decision and may be correspondingly concerned about it. Someone picking up a bag of carrots at the store is making a low purchase, and a negative result would have relatively minor repercussions. On the other hand, someone who buys a house is making a big purchase. Much more time is needed to evaluate the home purchase and decide whether it is a safe purchase.
There are several components to perceived risk. One is money. People may be concerned about whether they have enough money for a purchase, whether a purchase is a good deal, or whether there are better deals elsewhere. Time investment is another concern and can be an especially big issue with small purchases. People are willing to commit to large purchases, while small purchases want to be able to complete a transaction quickly. A long line or crowded parking lot can become a significant deterrent for the consumer.
Perceived risk can also take into account issues such as the social and psychological risks associated with a purchase. People may be concerned that a purchase will be ridiculed by friends and neighbors or that a purchase could have problematic ethical implications. A classic example comes from the diamond industry, where many people are afraid to buy diamonds because of the perceived risk of buying a conflict diamond. There are also physical risks to weigh as consumers think about the possible health or physical dangers associated with a purchase.
Functional risk, whether a product will work as advertised or intended, is another form of perceived risk. All of these forms can be augmented or weakened by gathering more information. Consumers trust reviews from respected sources, opinions from trusted people, and information from manufacturers. Manufacturers and sellers can offer things like guarantees to reduce perceived risk and seal a deal.
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