Consumer Rankings of Risk Reduction Methods

Author(s): Ted Roselius

Source: The Journal of Marketing, Vol. 35, No. 1 (Jan., 1971), pp. 56-61
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/1250565
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 ConsumerRankings of
Risk ReductionMethods
TED ROSELIUS
When a buyer perceives
risk in a purchase he can pur-
sue different strategies of
risk resolution. This article
presents research findings
which indicate that consum-
ers have preferences for dif-
ferent methods of risk reduc-
tion associated with various
types of loss.
Journal of Marketing, Vol.
1971), pp. 56-61.
BUYERS often face the dilemma of wanting to purchase a prod-
uct, and yet they hesitate to buy because it involves taking the
risk of suffering some type of loss. When faced with this dilemma,
the consumer is confronted with a variety of methods which could
be used to reduce the risk of loss. For example, he could rely on his
previous success with a brand, study published test results on the
product, seek advice from friends, or try a free sample. Thus, the
potential buyer can be as uncertain about the best method of
reducing the risk as he is about whether to make the purchase.
The marketer faces a similar dilemma. Little general information
is available to him, for example, about Whether buyers have more
confidence in brand loyalty than they do in money-back guarantees
or major brand image. In turn, public policy makers interested in
consumer protection are concerned with creating a wider choice
for consumers among the various methods of reducing the risk
of a loss.
Since little is known about buyers' relative preferences for meth-
ods of reducing risk, the ability to choose from a large number of
methods poses problems both for consumers and marketers. Con-
sumer preferences for 11 different methods of reducing the risk
associated with various types of loss are presented in this article.
Risk Reduction
When a buyer perceives risk in a purchase he could pursue one
of four different strategies of risk resolution: (1) He could reduce
perceived risk by either decreasing the probability that the pur-
chase will fail, or by reducing the severity of real or imagined loss
suffered if the purchase does fail; (2) he could shift from one
type of perceived loss to one for which he has more tolerance; (3)
he could postpone the purchase, in which case he would be shifting
from one general risk type to another;1 or (4) he could make the
purchase and absorb the unresolved risk.
A risk reliever is a device or action, initiated by the buyer or
seller, which is used to execute one of the first two strategies of
risk resolution mentioned above. For instance, a buyer might
rely on brand loyalty as a way of obtaining a higher probability
of purchase success, or he might rely on a guarantee as a way of
reducing the severity of money loss in case of purchase failure.
Brand loyalty and guarantees are risk relievers; they are methods
which relieve risk-related hesitancy to buy by serving as catalysts
1 D. T. Popielarz,"An Exploration of Perceived Risk and
Willingness
35 (January,
to Try New Products," Journal of Marketing Research, Vol. IV
(November, 1967), pp. 368-372.
56
 Rankings of
Consumer Rankings of Risk Reduction Methods
to facilitate the purchase. It is postulated that
buyers have a set of many risk-relieving devices and
actions ranging from most preferred to least pre-
ferred which they call upon as needed. Perception
of risk causes the buyer to select whichever device
appears to be best suited for the type of risk in-
volved.
Following Bauer's suggestion to investigate the
risk elements of buying,2 several studies have been
conducted on individual methods for relieving risk.
While insights were gained about the single method
of relief studied, it is difficult to place the results
in a comparative perspective with other research.
In other words, no reference point exists that
shows the attitudinal relationship between, say, free
samples and brand loyalty.3 A researcher may
spend valuable time studying a certain method of
risk relief which has less significance than other
methods would have had in the same situation.
Moreover, the researcher may be puzzled by unex-
pected findings as Cunningham was when his study
of "high risk spaghetti buyers" failed to support a
hypothesis that had been confirmed by other groups
in the study.4
The seller faces a trade-off between the cost of
offering a risk reliever and the benefits of higher
sales volume derived from reducing risk-related
hesitancy to buy. The seller's problem is one of
deciding which method, out of a wide variety of
methods, will serve most effectively for relieving the
specific risks his market segment perceives in his
product.
The research reported here provides a context
within which a wide variety of risk relievers can
be viewed simultaneously. This perspective was
achieved by having subjects evaluate 11 risk re-
lievers on the basis of how helpful they are for
reducing the threat of various kinds of loss; for
example, whether guarantees are generally thought
to be more helpful than other relievers for reducing
the threat of money loss.
Methodology
Data were derived from responses of 472 house-
wives to a written questionnaire mailed to 1400
households in a commuter suburb of Denver, Colo-
rado. The questionnaire presented several gener-
2R. A. Bauer, "ConsumerBehavior as Risk Taking,"
in Dynamic Marketing For a Changing World, R. S.
Hancock,ed. (Chicago, Illinois: American Marketing
Association, June, 1960), pp. 389-398.
3 This question is also explainedin J. N. Sheth and M.
Venkatesan, "Risk ReductionProcesses in Consumer
Behavior," Journal of Marketing Research, Vol. V
(August, 1968), pp. 307-310.
4 S.M. Cunningham,"PerceivedRisk as a Factor in
the Diffusion of New Product Information,"in Sci-
ence, Technology, and Marketing, R. M. Haas, ed.
(Chicago, Illinois: American Marketing Association,
September,1966), pp. 698-721.
57
57
alized, risky buying situations, each posing a con-
stant threat of some kind of loss. To prevent intro-
ducing a product bias, and to make the findings as
general as possible, the situations were not related
to specific products or purchase methods.
Attitude toward various risk relievers was meas-
ured on a five-point scale, reflecting the housewives'
opinion as to how helpful each reliever would be for
reducing the risk posed in the situation. The scale
was anchored at five positions as follows: almost
always helpful, usually helpful, sometimes helpful,
rarely helpful, almost never helpful.
Eleven methods of risk relief were selected on the
basis of their representativeness, applicability to
various methods of purchase, and applicability to
kinds of products. All relievers were presented for
each buying situation and were defined in the ques-
tionnaire as follows:
1. Endorsements: Buy the brand whose advertis-
ing has endorsements or testimonials from a
person like you, from a celebrity, or from an
expert on the product.
2. Brand Loyalty: Buy the brand you have used
before and have been satisfied with in the past.
3. Major Brand Image: Buy a major, well-known
brand of the product, and rely on reputation
of the brand.
4. Private Testing: Buy whichever brand has
been tested and approved by a private testing
company.
5. Store Image:5 Buy the brand that is carried
by a store which you think is dependable, and
rely on reputation of the store.
6. Free Sample: Use a free sample of the product
on a trial basis before buying.
7. Money-back Guarantee:6 Buy whichever brand
offers a money-back guarantee with the prod-
uct.
8. Government Testing: Buy the brand that has
5 Store image and price-quality differencesboth were
discussed recently in J. E. Stafford and B. M. Enis,
"The Price-Quality Relationship: An Extension,"
Journal of Marketing Research, Vol. VI (November,
1969), pp. 456-458.
6 J. G. Udell and E. E. Anderson,"The Product War-
ranty as an Element of CompetitiveStrategy," JOUR-
NAL OF MARKETING,Vol. 32 (October, 1968), pp. 1-8.
* ABOUT THE AUTHOR. Ted Roselius
is assistant professor of business ad-
ministration at Colorado State Univer-
sity. He received his MBA and DBA
from the University of Colorado. Pro-
fessor Roselius was a 1967 American
Marketing Association Doctoral Con-
sortium Fellow.
58
58
been tested and approved by an official branch
of the government.
9. Shopping: Shop around on your own and com-
pare product features on several brands in
several stores.
10. Expensive Model:7 Buy the most expensive
and elaborate model of the product.
11. Word of Mouth:8 Ask friends or family for
advice about the product.
Attitude about the helpfulness of these 11 reliev-
ers was measured and analyzed across four kinds of
loss selected to represent the ones which are widely
different, easily explained, and commonly suffered.
The losses were defined in the questionnaire as fol-
lows:
1. Time Loss: When some products fail, we
waste time, convenience, and effort getting it
adjusted, repaired, or replaced.
2. Hazard Loss: Some products are dangerous to
our health or safety when they fail.
3. Ego Loss: Sometimes when we buy a product
that turns out to be defective, we feel foolish,
or other people make us feel foolish.
4. Money Loss: When some products fail, our loss
is the money it takes to make the product
work properly, or to replace it with a satis-
factory product.
Items which respondents had rated on the scale
can be ranked by using average scores or by using
the gross percent of favorable response from the
scales. However, the positive favorable response to
an item can be highlighted by using a net percent
favorable response. Thus, to rank relievers the
number of unfavorable responses (rarely helpful and
almost never helpful) was subtracted from the num-
ber of favorable responses (usually helpful and al-
most always helpful). The difference was divided
by the total number of responses. The quotient,
when multiplied by 100, yields a net percent of fav-
orable response, which the author has labeled "net
favorable percentage" (NFP).
The NFP has a continuous range from +100 to
-100, reflecting a completely favorable and a com-
pletely unfavorable response. This range was di-
vided into seven categories simply to provide quali-
tative terms which would be consistently descriptive
of the general level of preference for using a re-
liever. (See Table 1.)
The NFP statistic was used to rank the risk
relievers for each of four kinds of loss. The rank-
ings yielded by data from all respondents are pre-
sented in Table 2.
7 Same reference as footnote 5.
8 Johan Arndt, "The Role of Product-RelatedConversa-
tions in the Diffusion of a New Product," Journal
of MarketingResearch, Vol. IV (August, 1967), pp.
291-296.
Journal of Marketing, January, 1971
TABLE1
QUALITATIVEDEFINITION OF PKfKMKSNCE
LEVEL BASED ON NFP
Range of Net Response is
Favorable Percentage Defined as
+100.0 to + 71.5 Extremely favorable
+ 71.4 to + 42.9 Very favorable
+ 42.8 to + 14.3 Slightly favorable
+ 14.2 to - 14.1 Neutral
- 14.2 to - 42.7 Slightly unfavorable
- 42.8 to - 71.3 Very unfavorable
- 71.4 to -100.0
Extremelyunfavorable
Findings
Buyer confidence in the helpfulness of each risk
reliever provides insights in at least three areas:
(1) It is helpful to compare relievers on the basis
of the general level of confidence expressed about
them; (2) an indication is provided about how well
each kind of loss is covered by the relievers studied;
and (3) individual relievers can be defined on the
basis of the variety of situations to which they can
be applied.
As indicated by the NFP values and the rankings
of Table 2, brand loyalty and major brand image
evoked the most consistently favorable response and
were ranked one and two for all types of loss. A
Chi-square analysis of the data indicated that re-
sponse to brand loyalty was significantly more fav-
orable than for all other relievers. Response to
major brand image was significantly more favorable
than for all relievers except brand loyalty.
Store image, shopping, free sample, word of
mouth, and government testing generally evoked a
"neutral" or "slightly favorable" response, for all
categories but expected hazard loss. Chi-square
analysis failed to indicate a consistent pattern of
similarity or difference between these relievers.
Endorsements, money-back guarantees, and pri-
vate testing typically evoked a "slightly unfavor-
able" response, or "neutral" at best. Chi-square
analysis did not uncover a consistent pattern of
difference between these relievers.
Buying the most expensive model to relieve risk
was consistently the least favored strategy. Chi-
square analysis indicated that this reliever evoked a
response significantly less favorable than for any
other reliever for all loss types.
Some of the risk relievers consistently were rated
unfavorably by the respondents. These relievers
can be considered to be expensive strategies for
manufacturers to pursue. This indicates that a firm
could benefit from a complete study of the effective-
ness of those relievers that it is currently offering or
advertising. Such a study might reveal that a firm
may be able to offer equally effective, but less ex-
pensive, strategies in the reduction of perceived
risk.
Consumer Rankings of Risk Reduction Methods 59

TABLE 2
RANKING OF RISK RELIEVERSFOR FOUR KINDS OF LOSS BASED ON RESPONSESFROMALL BUYERS

KIND OF LOSS
TIME LOSS HAZARD LOSS EGO LOSS MONEY LOSS
Response NFP* Reliever
Definition NFP* Reliever NFP* Reliever NFP* Reliever
Extremely 90.2 Brand 92.5 Brand Loyalty 96.0 Brand Loyalty 98.0 Brand Loyalty
Favorable Loyalty'
Very 44.1 Major Brand" 50.6 Major Brand 62.6 Major Brand 65.4 Major Brand
Favorable
Slightly 21.5 Store Image 34.4 Gov't. Testing 28.3 Store Image 29.7 Store Image
Favorable 19.4 Shopping 27.3 Free Sample 26.8 Free Sample
16.3 Free Sample 27.3 Shopping 19.8 Shopping
Neutral 12.9 Wordof Mouth 0.0 Word of Mouth 4.0 Word of Mouth 11.9 Gov't. Testing
- 5.4 Gov't. Testing - 1.0 Store Image - 7.0 Gov't. Testing 6.9 Wordof Mouth
- 7.4 Endorsements - 3.2 Shopping - 8.1 Endorsements - 1.9 Money Back
-14.0 Private Test - 8.1 Money Back Guar.
Guar. -12.9 Endorsements
Slightly -20.4 Money Back -17.2 Free Sample -26.2 Private Test -35.6 Private Test
Unfavorable Guar. -33.3 Endorsements
-24.7 Private Test
Very -65.6 Expensive -47.3 Money Back -68.2 Expensive
Unfavorable Model, Guar. Model
Extremely -79.5 Expensive -75.8 Expensive
Unfavorable Model Model
*NFP = ((Number of favorable responses - number of unfavorable responses) - total responses) X 100.
"A Chi-square analysis indicated that these findings are significant at the .05 level of confidence.

Relief of Various Loss Types
In general, subjects interpreted a variety of widely
different relievers to be applicable for each kind of
loss. This would indicate that buyers of products
which evoke a certain kind of risk would usually
have a variety of ways open to them for relieving
their risk tensions. In particular, there is an in-
dication that for time, ego, and money losses a
reasonable variety of risk relievers would be
available.
For hazard loss, however, choice among risk re-
lievers is somewhat limited. Only three relievers
(brand loyalty, major brand image, and govern-
ment testing) evoked a response that was clearly
favorable. Buying in a situation in which none of
these three relievers is available would seem to
be a fairly common experience, in which case the
buyer is forced to absorb the perceived risk of loss
if he cannot postpone the purchase.
Special Purpose Methods of Risk Relief
Some buyers were expected more likely to per-
ceive risk in a purchasing situation than others.
It was assumed that high perceivers of a loss might
have had more or less faith in a particular reliever
than did other buyers. To identify respondents who
could be defined as high perceivers of each kind
of loss, subjects were asked about the relative im-
portance of each kind of loss suffered if a specific
product type failed. A buying problem was posed,
and answers were collected on a scale anchored at
each of its five positions as follows: strongly agree,
agree, neutral, disagree, strongly disagree. For
instance, high perceivers of money loss were defined
as those respondents who "strongly agreed" that
there would be an important loss of money to them
if the product failed.
In this way, 37.5% of the respondents were de-
fined as high perceivers of time loss and 39.7%
were defined as high perceivers of money loss. For
hazard and ego loss, those buyers who "agreed"
that there would be an important loss were also
counted with those who "strongly agreed." For
hazard loss, 38.4% of the respondents were defined
as high perceivers and 18.1% were defined as high
perceivers of ego loss. Some respondents were de-
fined as high perceivers of more than one kind of
loss.
High perceivers of risk presumably would have
more interest in helpful risk relievers than would
respondents who might be defined as medium or
low perceivers. Therefore, the response of the high-
risk perceivers was compared with that of all other
respondents.
Table 3 presents rankings of relievers generated
by data from the high-risk perceiver group alone.
A Chi-square analysis was used to compare the
responses of high-risk perceivers to each reliever
across kinds of loss, and to compare their responses
with those of all other buyers. Five risk relievers
were found to have special meanings; i.e., there
are certain relievers which could be defined as
special-purpose risk relievers since they would have
60 1971
Journal of Marketing, January, 1971

TABLE 3
RANKING OF RISK RELIEVERS FOR FOUR KINDS OF LOSS BASED ON RESPONSE OF HIGH-RISK PERCEIVERS

KIND OF LOSS

Response TIME LOSS HAZARD LOSS EGO LOSS MONEY LOSS

Definition NFP* Reliever NFP* Reliever NFP* Reliever NFP* Reliever
Extremely 93.7 Brand Loyalty 89.1 Brand Loyalty 97.5 Brand Loyalty 97.7 Brand Loyalty
Favorable
Very 43.7 Major Brand 51.4 Gov't. Testing 62.5 Major Brand 67.5 Major Brand
Favorable 43.2 Major Brand 57.5 Free Sample 44.2 Free Sample
Slightly 25.0 Word of Mouth 32.5 Store Image 32.6 Shopping
Favorable 18.7 Store Image 25.0 Word of Mouth 25.6 Gov't. Testing
18.7 Free Sample 22.5 Shopping 25.6 Word of Mouth
23.3 Store Image
Neutral 12.5 Gov't. Testing 2.7 Private Testing 10.0 Money Back 9.3 Money Back
12.5 Shopping - 2.7 Store Image Guar. Guar.
3.1 Endorsements - 8.1 Free Samples 7.5 Endorsements 0.0 Endorsements
- 8.1 Word of Mouth 7.5 Gov't. Testing
-13.5 Shopping -10.0 Private Testing
Slightly -18.7 Money Back -16.2 Endorsements -25.6 PrivateTesting
Unfavorable Guar. -40.6 Money Back
-28.1 PrivateTesting Guar.
Very -62.5 Expensive -67.6 Expensive -58.2 Expensive
Unfavorable Model Model Model
Extremely -72.5 Expensive
Unfavorable Model
*NFP = ((Number of favorable responses - number of unfavorable responses) - total responses) X 100.

a different impact according to the buying situa-
tion, the kind of loss perceived, and the type of
buyer involved.
1. Major Brand Image: The high-perceiver
group agreed with other buyers on the help-
fulness of this reliever in all cases except for
the threat of a hazard loss. Since the high-
perceiver group rated this reliever signifi-
cantly less favorably than did other buyers
for a hazard loss, there is an indication that
the seller of a product which evokes a threat
of hazard loss would find that the buyers for
whom the hazard loss is most threatening
would put less confidence in brand image
than would other buyers.
2. Store Image: The high-perceiver group felt
this reliever to be equally helpful for all
losses. However, other buyers expressed a
significantly more favorable response toward
store image when it was applied to a threat-
ened money loss than they did for other loss
types.
In addition, other buyers did not express
as much confidence in the helpfulness of this
reliever when applied to a potential time loss.
Buyers prone to perceive time loss expressed
a significantly less favorable attitude toward
store image as a way of relieving threatened
time loss than other buyers.
3. Free Sample: When buyers who were prone to
perceive risk compared this reliever across
kinds of loss, they felt free samples to be
equally helpful for relieving threats of time
and money loss. However, they rated free
samples significantly more helpful for relief
of ego loss and significantly less helpful for
relief of hazard loss.
High perceivers of risk agreed with other
buyers on the helpfulness of free samples, ex-
cept in the case of a threatened ego loss. High
perceivers of ego loss expressed more faith
in free samples than did other buyers.
4. Word of Mouth: The high-perceiver group
felt this reliever to be equally helpful for all
kinds of loss except threats of hazard loss.
Word of mouth was thought to be signifi-
cantly less helpful when the threat was of a
hazard loss than for other losses.
High perceivers agreed with other buyers
on the helpfulness of word of mouth, if it is
used to relieve time and hazard loss. How-
ever, buyers prone to perceive ego or money
loss felt this reliever to be more helpful than
did other buyers.
5. Government Testing: The high-perceiver
group felt this reliever to be equally helpful
for all losses. However, when other buyers
compared this reliever across kinds of loss,
they indicated government testing to be sig-
nificantly more helpful for relief of hazard
loss than for other loss types.
The high-perceiver group agreed with other
buyers on the helpfulness of the reliever, ex-
Consumer Rankings of Risk Reduction Methods
cept in the case of money loss. High perceiv-
ers of money loss felt this method of relief
to be more helpful than did other buyers.
The above relievers have special meanings, indi-
cating that they would be especially appropriate for
a particular type of buyer such as a high-risk per-
ceiver, and also for particular types of loss. Thus,
there is an indication that when a manufacturer
relies upon any one of these five methods of risk
reduction, he should do so with careful thought
given to the kind of loss perceived in his product
and the relative impact on high versus low per-
ceivers of risk. This would be especially important
if subsequent research indicated that the very act
of stressing a risk reliever, such as a guarantee,
causes some buyers to perceive risk in the purchase.
General Purpose Methods of Risk Relief
The remaining relievers (brand loyalty, private
testing, shopping, endorsements, expensive models,
and money-back guarantees) did not evoke a sig-
nificantly different response when each was com-
pared across kinds of loss. Furthermore, there was
not a significant difference in response between
high perceivers and other buyers with respect to
the helpfulness of these relievers for any kind of
loss. Therefore, these six relievers have been de-
fined as general-purpose risk relievers. The indica-
tion is that if a seller relied on one of these reliev-
ers as a method of reducing risk-related hesitancy
to buy, he would expect the reliever to have the
same impact on those buyers who perceived a
greater amount of risk in the purchase as it had
on other buyers. These relievers may also be equally
effective, or ineffective, regardless of the kind of
loss perceived.
Summary
Some relievers may receive a higher or lower
rank if associated with certain methods of pur-
chase or with certain types of products, although
61
this question was beyond the scope of this study.
However, the results here indicate that buyers gen-
erally favor some risk relievers and are relatively
unimpressed with others. More important, it was
found that buyers prefer some relievers to others
depending upon the kind of loss involved, and that
the attitude toward relievers can differ between
different types of buyers.
Perhaps a seller should first determine the kind
of risk perceived by his customers and then create
a mix of risk relievers suited for his combination
of buyer type and loss type. For example, the fact
that endorsements and guarantees evoked a gen-
erally unfavorable response indicates that sellers
may presently be promoting risk relievers which
do not provide any effective reduction in perceived
risk for many of their potential customers.
Buyers have preferences which extend over a wide
variety of methods of relief. This finding supports
the statement that, generally, buyers have a choice
open to them for reducing perceived risk. It is also
clear from the rankings of the risk relievers that
there is a danger of misdirecting research efforts if
they were focused on relatively insignificant methods
of risk relief-methods which have a neutral or un-
favorable meaning to many potential buyers. Thus,
future research on risk relief should include a va-
riety of methods for risk reduction, rather than
study individual risk relievers in isolation from
others.
The makers of public policy relative to consumer
protection might consider the findings of this study
which have indicated that out of the three relievers
that evoked confidence for relieving hazard loss,
two of them-brand loyalty and major brand image
-probably reduced perceived risk rather than
actual risk of loss. Perhaps future research should
be focused on designing another type of reliever
of hazard loss before government testing, the other
favored reliever, becomes mandatory on a wider
scale.