Best in Brief

MIT Sloan Management Review: Risky business

Mark Vandebosch
and
Niraj Dawar

In an environment where competitors can match any product improvements quickly, companies can influence purchasing decisions in two ways: reduce interaction costs or make purchase and ownership less risky.

Buyers incur a range of costs in learning about, acquiring, using, configuring and finally disposing of products. It is also often missed that in purchasing a product or service bundle, consumers incur the costs of not purchasing an alternative bundle. Thus, someone might buy a people carrier for roominess and comfort, but forgo the fun and image of driving a convertible.

Risk comes into play when consumers consider the range of possible outcomes from interaction. A number of questions may be asked, such as whether or not the product or service will perform as expected. Will they lose money? Will the seller be around for repair and maintenance? Can the seller's promises be trusted? If the risks seem too great, they often decide not to buy. As a consequence, established products are often bought in preference to better new ones simply because the new ones pose too high a risk.