Guarantees - Removing the Barriers to Sales
In most buyer-seller relationships it’s the customer who “shoulders” the risks around whether a product or service will suit their needs. They must make their purchasing decision based on a range of factors and, if the product or service purchased does not ultimately meet their expectations, they lose out.
If you as the seller are willing to mitigate some of that risk, you can build vitally important rapport and trust with your customer. This can in turn increase the amount of business you do, the amount of customers you win, and the number of quotes you turn into sales. By eliminating the perceived risk to a customer, you effectively remove one of the greatest barriers to achieving sales.
Taking the risk out of an opportunity makes the proposition far more attractive, and this fundamental understanding has brought success to countless businesses. By reducing or eliminating the perceived risks associated with a sale, you can generate larger and more frequent sales, as well as increased enquiry conversion rates and repeat business. You’ll be familiar with this sales practice under its colloquial name: a guarantee.
Put another way, if you have nothing to lose on an action, any action, then you are much more likely to take a chance on trying something new. If customers think they can’t lose by dealing with you, then more often than not they’ll be willing to give you a shot. You’re probably familiar with businesses that guarantee – either totally or partially – their product or service, but do you realise the effect that generates for them? Many businesses charge well beyond what their competitors charge, simply because they offer a guaranteed product or service. Their customers are only too happy to pay the extra for that reassurance.
Guarantees not only strengthen a vendor’s perceived commitment to their offerings, but they also provide customers with a compelling reason to buy. A guarantee can have a marked effect on your business and its growth, in that by removing the perceived risk associated with your product or service, you will win more customers and sales. Innumerable businesses have implemented this concept with excellent results, but many won’t even try it because they fear the prospect of unscrupulous customers taking advantage of their goodwill. It’s important, at this stage, to therefore discuss two points:
Firstly, you as the seller have the power to set the terms of your risk mitigation proposition.
You don’t have to offer an unconditional guarantee. You don’t have to offer anything like, “If you’re not 100% satisfied with everything about the product/service, we’ll give you all your money back”. Far from it. It’s up to you to set terms that you’re comfortable with.
The second point is that, whatever your risk mitigation approach, make it explicit and distinctive.
You can enjoy a significant advantage over competitors by removing perceived risks because, in many cases, they won’t be offering any risk mitigation at all.
Risk removal to clinch the Sale
Take for example the advertising campaign by Officeworks who guarantee they will beat any cheaper advertised price on an identical stocked item by 5%. This is explicit; there’s no mistaking what they mean. As another example, fast food chains commonly offer speedy service guarantees, thereby enhancing their appeal to busy, hungry customers.
The risk removal concept is also effectively applied by home shopping businesses. These sell a wide range of products including exercise machines, skin care products, dietary supplements, home care items, and more. They all offer a risk removal proposition that generally goes something like:
“Try our product risk-free for 30 days and, if you aren’t 100% satisfied, return the product at no cost.”
You’ve no doubt observed many of these types of ads before, but do you know the average rates of return? Of all such products sold, less than 5% are ever returned. Would these businesses sell anywhere near the amount of product they do if they didn’t offer this risk removal proposition? Not likely.
Another example is a bedding retailer that states, “Should one of our competitors advertise the same item at a lower price within 30 days of your purchase, we’ll refund the difference plus 10%”. You can’t get more specific than that. There’s also the trade business which proclaims, “If we’re not on time, we’ll give you $50”. That’s explicit.
And that’s what risk mitigation is all about: taking away the doubts that a customer might have when considering buying your product or service. It’s all about removing the stumbling blocks for them, and it’s a great way to clinch a sale.
Now, no doubt you have an extraordinary business – one which strives to supply exemplary service and quality, and at the best value for money in your industry. Why then wouldn’t you “put your money where your mouth is” and guarantee it?
If you’re worried people might try to take advantage of you, you’re not alone. That’s actually the most commonly cited reason why a business won’t offer a risk removal proposition to its customers.
And yes, there are unscrupulous people like that in the world. However, it might surprise you to know that they’re quite few and far between. Assume for the sake of argument that 10% of the population are basically dishonest and intent on ripping you off. Why would you make a decision that adversely affects the other 90% of people? Why give customers a reason not to engage with you, because you haven’t offered to mitigate the perceived risk of dealing with your business?
Add to this the fact that having an explicit risk removal offer like the ones we just described can potentially win you many times more business than you’re currently enjoying – which could easily make up for any abuse of the offer, several times over.
Types of Guarantees
Devising a suitable guarantee depends very much on the type of product or service you sell.
Consider for example a pet store that offers a “cockatoo guarantee”. If the purchaser of a bird loses it, for any reason whatsoever, the shop will bear the first 50% of the cost of a replacement. Are they mad? No, they’re very clever.
By offering this kind of risk removal, customers know that when they buy a bird from this shop it’s going to be a long-term pet. Even if it dies or flies out the window, they know they can go back and be able to get another, with the shop meeting half the cost.
And this shop owner knows they have a customer for life. Even if the unexpected happens, they will still get 50% of the usual sale price of a new bird. They won’t be making as much as they usually would on a sale but, think about it, they have brought the customer back into the shop. The customer hasn’t gone elsewhere. In fact it’s probable that the customer will purchase something else, at full cost, while they’re in the shop.
Establishing Your Risk Removal Offer
So just how do you determine what your risk removal proposition should be? That’s actually easy: your customers will tell you. All you need to do is ask them what their main concerns and apprehensions are. If you want really good answers, get someone to anonymously ask your customers. Also ask your associates and friends what frustrates them about dealing with businesses in your industry. Don’t be offended by their answers. They will provide you with insight and opportunity to develop your business.
Remember, risk removal can apply to a number of different areas: timeliness, quality, delivery, service, price, appearance, and usage are just a few.
You might even have a business which requires different risk removals or guarantees for different products or services. Understand what your customers’ risk priorities are and you’ll find your best risk mitigation approach.
Identifying and Eliminating Fear Barriers
This is a slightly different form of risk removal. It’s not exactly a guarantee, but rather a strategy to entice commitment to a purchase. This is accomplished by removing the barriers or fears which customers perceive exist, and which inhibit them from making a purchase. You can implement this in nearly any business, especially if you are in the practice of quoting a price before purchase.
Look at the reasons why people are keen to do business with you, but don’t. Address what their reservations about committing might be. Have a look and see if they perceive they’re not getting the value they want. For example, they may build up a relationship with somebody they really like, and that person may be leaving. They may be concerned they won’t get the same kind of service from anybody else in your business. Come up with ways to eliminate that fear and add value, and you’ll find that your conversion rate goes through the ceiling.
Think about things like:
Financial exposure
Perceived value
Relationship prospect
Stock risk (i.e. the likelihood of stock getting broken, going off, not selling, or the risk of you going out of business).
Importance of Testing
Before making a final decision on the risk removal strategy you’ll offer to customers, remember that it’s important to “test” the effect it will have on sales.
Remember that the point of risk mitigation is to remove obstacles which customers face in purchasing from you, and enticing them to make that purchasing decision. Does your risk removal proposition do that?
If it sounds nice and warm and fuzzy, but doesn’t actually lead to a purchase, then reconsider your approach. Think about what’s stopping potential customers from purchasing from you, and shift your focus to removing that specific obstacle.
Potential Problems with Risk Removal
What if the problems a customer is experiencing are due solely to themselves? What if the customer alone is at fault? Maybe he or she used the product incorrectly. Maybe they didn’t read the instructions. Maybe they were just careless. Why should you have to bear the brunt of that?
These are fair questions, and ones that get raised quite often.
Let’s go back to the pet shop example. The shop guarantees their birds or they pay the first 50% of the replacement cost. It doesn’t matter if the customer leaves the cage open and the bird flies away – they will still get the first 50% of the replacement cost from the shop.
The shop has addressed the issue by making their guarantee conditional. That is, they have set the terms. They don’t guarantee to pay the full replacement cost, just 50%. Even if the customer is in the wrong, they’ll still happily deliver on their risk removal offer. Just imagine how that makes the customer feel. The shop now has a customer for life!
Another example is a beer home brewing company. If a customer comes back claiming that the beer didn’t turn out properly, does the company say, “Well it’s your fault.” (at which point the customer is irate). It also becomes abundantly clear that the customer will never purchase from them again, and will probably tell many of their friends about the bad service. So they say instead, “I’m terribly sorry this hasn’t worked out the way you wanted. Let us replace the kit and give you some pointers on how to improve the brew next time you use it.”
What the company understands is that, unless they offer this kind of risk removal, they’ll never get repeat sales from that customer. It’s also fair to say that if one customer has trouble, so will others – and if the company doesn’t provide a level of service and risk mitigation to them, they’ll never get repeat sales from those customers either.
“A dissatisfied customer will tell between 9-15 people about their experience”
Regardless of the reasons, if the business does not have any risk removal policy in place, those disappointed people will never buy from them again. The business will be forced to constantly pursue new customers, which is the most costly way to market.
Now look at the downside of not offering risk removal. This includes the customers who will go elsewhere, the cost of getting new leads, and the difficulty in converting enquiries. Contrast that with the effect of having to pay out on a guarantee every now and again. There’s really no comparison. You’ll be far ahead if you offer risk removal to customers.
The Issue of Price
It’s important to note here that offering risk removal may also have a significant effect on the price of your products or services. People are usually willing to pay more for greater perceived value and less risk.
If you’ve removed the risks associated with purchasing your product or service, do you think people will be prepared to pay a little more for it? Does the product or service you offer seem more valuable? In many cases, people are prepared to pay significantly higher prices for the same product or service simply because of a guarantee.
How can you effectively implement perceived risk mitigation in your business? As a first step, consider and action your responses to the following questions – and then watch your sales grow.
What are the key concerns of our customers?
What fears might customers have about doing business with us?
How can we remove perceived risk in each case?
What does the team feel are the greatest areas of client frustration or apprehension, and what do they think we could guarantee to mitigate this?
In what business area(s) could we incorporate guarantees, and what should they be?
How will this entice a customer to purchase?
How will we articulate our guarantee in:
Advertising materials
Telephone selling scripts
Personal sales presentations
Quotes and proposals
Letters to customers
How can we incorporate our guarantee or perceived risk mitigation strategy into our Unique Selling Proposition (USP)?
What Competitive Advantage / Market Attractiveness (cama) weighting can we assign to guarantees and risk reduction propositions?