Tuesday, August 20, 2013

Risk Not in Misreading Risk Tolerance

Nation’s Restaurant News says consumers’ concerns about food safety are increasing. From a consumer psychology perspective, this increase could be seen as another manifestation of shoppers, on average, having become more risk averse over the past few years. London-based Trajectory Partnership blames it on the economic downturns and predicts it will last for a long time.
     But that’s the case on average. Some shoppers these days have a high risk tolerance, and for many shoppers, the risk tolerance depends on the consumption situation. Target motivations include:
  • Endowment Effect. Researchers at Baruch College analyzed food safety situations where, for instance, if people saw cheese with some mold on it being offered at a buffet, they’d pass on the cheese altogether, but if those same people had that same cheese in their refrigerator, they’d say, “Hey, what’s a little mold?” After we’ve acquired a product and worked through any initial regrets, we tend to overvalue the product. That’s the endowment effect. 
  • Educational Effect. The organizers of a Brooklyn Kitchen bug-eating event in Manhattan touted the benefits of learning about cultures in which eating bugs is common. 
  • Roller Coaster Effect. Consumers go on the most treacherous roller coasters not only for the stimulating physical sensations, but also for the sense of pride achieved in prevailing over fears. 
  • Breakthrough Effect. Some consumers are more interested in breaking taboos than in breaking through fears. These individuals yearn to push the limits. 
     Whatever you’re selling, stay aware of what you might be overlooking when analyzing a shopper’s risk tolerance.
     A universal ritual with an investment advisor is the interrogation regarding the client’s tolerance for risk. The answers form the framework for the investment portfolio the advisor builds. However, Santa Clara University researchers asked, “What if the client’s answers are inaccurate? Not intentionally inaccurate, but instead wrong because they’re incomplete?”
     Know the type of risks the item has. The purchase of a financial product involves monetary risk about which a consumer is likely to be highly concerned. Buying groceries at a familiar store involves maybe physical risk because of food safety and maybe social risk for status-oriented goods.
     Also assess the consumer’s propensity for regret. As you inquire about prior experiences, does your shopper psychologically beat himself about the head and body about mistakes and missed opportunities? If so, take whatever the shopper says is her degree of risk tolerance and push it a little lower.

Click below for more: 
Promote Sales from Product Recalls 
Dip Your Toe Into Extreme Experiences 
Dissect the Shopper’s Risk Tolerance

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