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Consumer Markets & Buyer Behavior

Decision Making & Perceived Risk

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Probably one of the most important factors that determines whether a purchase decision will be routine and uninvolving or extensive and involving is the amount of perceived risk tied to that decision.  The higher the perceived risk, the greater the probable level of involvement in the decision.  There are different types of risk associated with most purchase decisions: performance risk, financial risk, physical risk, and social risk.[1]  When risk is high on any one or more of these dimensions, consumers will tend to treat the decision as 'extensive' in nature -- they will tend to be involved.  

Performance Risk

Performance risk is the risk tied to the chance that the product will not work like it should.  Will the product break down?  Will it perform reliably? To the extent that such questions exist, consumers' perceptions of performance risk will be high.  This type of risk is usually greatest for major consumer durable products, particularly those that are quite technically complex.  Examples include cars, appliances, and electronics.

Financial Risk

Financial risk tends to be high when the product is expensive and the consumer's disposable income is limited.  This later point is important.  Consumers with limited disposable incomes are likely to perceive most purchases as possessing a degree of financial risk.

Physical Risk

Physical risk reflects the consumer's need for safety in products that are purchased.  Physical risk will be higher for those products that pose a potential safety hazard during purchase or use.  Automobiles, skiing equipment, backyard swimming pools, jet skies and the like are examples of products for which physical risk is often perceived as high.  Parents are particularly likely to see physical risk in some products purchased for use by their children.

Social Risk

When consumers are concerned about what other people may think of  the product, social risk is present.  If the product reflects group values, or otherwise is important to one's reference group, the degree of perceived social risk will increase.  Similarly, whenever a product reflects one's ego, there is likely to be some social risk surrounding its purchase.  Products that reflect the ideal private or ideal social self (ideal self images) are laden with social risk. Luxury goods (luxury cars, jewelry, homes) and products geared to enhancing one's social attractiveness (e.g. cosmetics, clothes) are most associated with social risk.[2] 

Consumers Try to Reduce Perceived Risk

Consumers seek to reduce the level of risk inherent in their purchases in several ways.  The most direct approach is to gather added information upon which to make a more informed, better decision.  More information brought to the decision, combined with a careful evaluation of alternatives can reduce the level of uncertainty surrounding the outcome of the purchase.  As an alternative risk-reduction strategy, consumers who do not feel confident with their own abilities to gather and evaluate information often will buy well-known brands or brands they have purchased before.  Indeed, brand loyalty can be, in part, the result of consumers' attempts to minimize the perceived risk associated with purchases.  Consumers also may solicit recommendations from 'credible sources' of information, such as friends, family, sales persons or other trusted 'experts.' 

1.Discussion adopted from Henry Assael, Consumer Behavior and Marketing Action, 5th Ed. (Cincinnati, OH: South-Western Publishing, 1995), pp 252-4.


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Page last modified: January 23, 2001