Risk and Other Costs
You’re going to have to fix the problem. If there’s time, you’ll have to run back to the store and replace the cups. So, in addition to the emotional cost, you must also pay in terms of extra time and additional money. All because of your bad decision. Those costs — negative emotions, time wasted, the extra money spent – all combine to form the risk you accepted when you made your
decision.
A Simple Exercise to Gauge Risk
Here’s a simple exercise to help you understand this concept. Draw a short vertical line. At the top of the line, write the number 25. At the bottom, write the number zero. Now on a scale of 0 to 25, with 0 being low, and 25 high, where would you put the risk of buying a package of disposable cups? You’d probably say it is close to zero. So, put an X on the line from 0 to 25
where you think the risk of buying those cups would be.
Let’s look at an illustration at the other end of the scale. I once had an adoption agency as a client. When a young lady is in a crisis pregnancy, and she’s making a decision as to whether or not to release her unborn child for adoption, how big a risk is that for her? Put your X on the line that represents your assessment of that risk.
Most people put their mark around 25. The risk in this situation is a lifetime of consequences for at least four people – the mother, child, and adoptive parents. That’s a very high risk. Compare the X’s for the two different decisions, and you’ll conclude that different decisions carry with them differing degrees of risk.
Applying Risk to Your Customers
Now, let’s apply this concept to your customers. Remember that every time you ask your prospects to say yes to you, they are accepting some risk. And each of those decisions you ask of them carries with it a different degree of risk.
Imagine your typical customer. Then think of the typical offer or decision you ask of that person. For example, take one of your newer products. Imagine you are presenting it to your customer for the first time. Now, put yourself in his shoes, and see the situation through his eyes. On the 0 – 25 scale, how much risk does your customer accept when he says “yes” to
you?
For an easy way of calculating it, just ask yourself what happens to that individual if you, or your company, or your product, doesn’t do what you promise?
If your customer buys that product and it doesn’t do what you claim it will, what trouble will that make for your customer? What consequences will he/she pay? What is the risk?
And don’t say that there is no risk because you’ll take care of any problem that might develop. You may think that, but your customer doesn’t know that. And remember, you’re trying to see this from your customer’s point of view, not yours. The amount of risk is what your customer perceives it to
be.
I had a great example of the role of risk in sales several years ago.
A young man approached me to help his company with their sales efforts. They were selling a product that was, at the time, a real state-of-the-art breakthrough. The company designed computerized controls that were retrofitted on food processing equipment. As a result of the use of these controls, the savings in energy consumption would pay for the cost of the equipment in less than a
year.
It looked like a great product. But he couldn’t sell them as rapidly as the company wanted.
“Tell me how you go about selling them,” I asked.
“We qualify our prospects to the point where we know we have someone who could use the equipment. Then I call the production engineer or the plant manager on the phone and gather some information about the type of equipment they use. Then I create a written proposal showing the economic payback, and mail it to him. Next, I call and try to close the sale.”
“Let me see if I understand correctly,” I said. “You’re calling a plant manager on the phone. I would guess that most plant managers are men in their 50’s, probably with advanced degrees, and who have been in the plant for a number of years, is that right?”
“That’s right.”
“OK,” I said. “So, you’re calling someone twice your age, asking him to spend $30,000 – $40,000 on equipment he’s never seen, from a company he’s never heard of, and from a salesperson half his age who he’s never met. Is that right?”
My client became a little defensive. “If you put it that way, I suppose it’s right.”
“Well put it that way,” I replied, “because that’s the way he sees it.”
The problem was simple – risk. On that scale of 0 – 25, how much risk would you think the plant manager would be accepting if he said “Yes” to the over-the-phone offer?
Put yourself in his shoes. Suppose the equipment didn’t work the way it was supposed to? He could shut down production lines, spend weeks trying to make things right, cause all sorts of havoc in the plant, and potentially even lose his job. Now that’s a risk.
If you were that plant manager, how much more than the original $30,000 quote would you spend to reduce the risk? It wouldn’t be hard to justify a price double that.
That should give you a clue as to how to fight the “low price” issue. Worry less about the low prices, and more about lowering the risk.
4 Strategies to Reduce Risk
1. Build solid, deep relationships with the key decision-makers.
Relationships mitigate risk. The greater the relationship, the lower the perceived risk. That’s why the salesman with a longer relationship almost always has the benefit of the doubt in a competitive situation. It is not the price – it is the risk.
2. Make ample use of third party recommendations, customer lists, case studies, and testimonials.
All of these say to the customer that someone else, or lots of other people, have used the product or service. That means it is less risk for your customer to buy it.
3. Try to get your customer as physically involved with the product as possible.
For example, if you’re selling a piece of equipment, try to get the customer to trial the equipment, or at least visit somewhere it’s being used. The more your customer can see and feel the actual thing, the less risk is it to them.
4. Finally, work with your company to create offers that reduce the risk.
Trial periods, money-back guarantees, delayed billing, warranties, service desks – all of these reduce your customer’s perception of risk.
The winners in the competitive selling arena of our difficult economy are those who are the low-risk providers, not the low price people.
