the psychology of risk in marketing

the psychology of risk in marketing

January 24, 2024

From an evolutionary standpoint, it is better to overestimate danger and to be wrong than it is to underestimate it. Our survival depends on it. The same logic often applies when we make purchasing decisions because, in some instances, it is literally a matter of life and death.

In business, risk is asymmetrical. While, for the entrepreneur, the upside of taking risk serves as a powerful incentive, customers have an inverse relationship with it. The downside of being an adventurous eater, for example, far exceeds the upside, leading most people to be much more conservative about what and where to eat.

Except for the few neophiliacs, customers go to greater lengths to minimize risks than to seek rewards. They are hesitant to try new things, skeptical of brand promises and for the most part satisfied with good enough rather than pursuing the best option available.

How we market to them should reflect this truth about our human nature. To help them make purchasing decisions, we have to account for all the ways they try to mitigate the risk that comes with every purchase. Below are six ways you can do just that.


We buy brands because they are less risky. Someone’s reputation is attached to it and you know exactly what to expect. If I'm not an adventurous eater, I’m more likely to go to McDonalds while traveling abroad, even if I don’t like it, because at least I know exactly what to expect. Brands are a great way to help customers mitigate risk because it gives them the ability to get more of the things they like and steer clear of the ones they dislike, not to mention the ability to hold someone accountable when harm is done.  


Whenever possible, we have to create opportunities for people to experience the benefits of their purchase before they commit. That’s the reason free trials, changing rooms, and demos are such powerful marketing tools. E-commerce stores are also able to help us close the empathy-gap that exists between our present and future selves by using specific specs and models, as well as images and videos. More recently, companies like Warby Parker have leveraged virtual and augmented reality to let people “try on” glasses before they commit. Since it’s a lot harder for companies to accomplish this online, most of them opt for risk reversal instead.


Risk reversal is also a powerful strategy to help people mitigate risk. To convince us to shop online, companies made it easy for us to return the items and get our money back. Without this crucial step, the uncertainty of buying online would simply be too high. Like online stores, many businesses also offer money back guarantees to lower the cost of uncertainty that comes with buying. Customers are more likely to buy if they know they have “nothing” to lose.


Since most of us can’t judge quality in objective terms, we often use price as a proxy. If someone is looking for the best product or service in any category, they will usually just buy the most expensive one to not take any risk. It’s a good rule of thumb because in most cases it’s true. Price is so effective, in fact, that it often serves as a powerful placebo. In some cases, cheaper products and services also often lower the risk threshold. Customers essentially identify the amount of money they are comfortable losing if they are wrong about the purchase. Lower prices in those cases act as a discount for uncertainty.


Complexity and ambiguity put customers on high alert. The harder it is to understand the benefit or value of something, the less likely we are to spend our time, energy and money. Marketers often make the mistake to forgo clarity for creativity. But lack of clarity about what we are selling and what exactly people are getting often creates uncertainty, so simplicity is often the best policy.  


Most people do not want to be the first to try something new. They usually wait for a few people to try it first before giving it a try, which is why social proof is such a powerful tool. The more expensive something is, the more we tend to do our research, which often entails reading reviews and asking for recommendations within our respective networks. Subscription services show us what’s trending or most watched, e-commerce have best sellers, restaurants have most popular items on their menus because they understand the power of social proof to lower uncertainty.

Ultimately, it’s important to understand that as people, we are wired with a bias for risk aversion because our survival depends on it. This means that more often than not, people are looking for ways to minimize the risk of making the wrong purchasing decision, more than they are seeking to maximize the potential benefits of making the right one. In the end, for customers, the biggest cost of all isn’t money, but uncertainty.

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