We’ve all been there: you’re pitching a great idea or solution with a solid business case. Still, the client has doubts and is reluctant. There’s a reason: your services are credence goods.
I can recall many times when this happened at our agency. We had spent quite some time figuring out what the client needed. After a promising and persuasive meeting with the buyer, we returned to our offices confident in our chances of winning. A week later the client got back to us and informed us the project had gone to another agency. We knew that other agency wasn’t up to the task. Even so, in the client’s mind, they were the better fit. To add to our frustration, resulting work was often nearly as good as what we could have accomplished.
What went wrong? Why?
This behavior baffled me at the beginning of my consulting and agency career. It didn’t make much sense until I learned about credence products.
In this article we’ll cover:
- Why and how credence products and services explain buyer hesitation, indecisiveness and lack of trust.
- What risks that indecisive buyers of credence services perceive and how they mitigate them.
- How sellers can manage perceived risks and reduce their impact to convince buyers more effectively.
Search, Experience and Credence
In marketing theory, we divide products and services into search, experience and credence goods.
Search Products and Services Can Be Evaluated Before Buying
These include most products and include cars, hammers, and mobile phones to name a few. You can easily compare different products. They can also be substituted meaning one phone has roughly the same features as another at the same price range. Substitution leads to fierce competition and prices being similar for a particular group of products.
Experience Products and Services Need to Be Used Before You Can Evaluate Them
These include restaurant dining and movies. You cannot compare them as quickly as search products due to them being experiential. However, online reviews have indeed pushed some of these towards the search product category. Yet, as we all know, reviews are only guiding, and your mileage may vary. Reputation and brand play key roles in winning customers when selling these products.
Credence Products and Services Cannot Be Fully Evaluated Even After Purchase
This category usually includes services in IT, marketing, consulting, law and health. Interestingly enough, cat and dog food are a credence product since you cannot judge the food yourself. Even human health care is often a credence service. After all, we rely on a medical professional’s opinion to determine whether the care was successful.
Since credence goods cannot be replaced with ease and are often customized, comparing different offers is difficult if not impossible. They are often indeed “apples and pears.” As a consequence, the buyer takes more risk. Price sensitivity is also lower since the buyer can’t “shop around.”
This is good and bad news for agencies and consultants. Buyers of services tend to be loyal and willing to pay once they’ve found a consultant or agency whom they trust. However, winning that trust isn’t a walk in the park.
Seven Perceived Risks When Buying Credence Goods
Buyers of credence products and services experience seven types of perceived risk. Note that these risks are indeed often perceived, not necessarily actual or real. Still, they’re real in the minds of the buyer:
- Performance risk: The likelihood that the product or service will not produce the benefit for which it was purchased. For example, the client won’t see the return that motivated the purchase.
- Financial risk: The likelihood that the product or service will fail and cause monetary loss. For example, e-commerce website downtime could lead to lost revenue.
- Time loss risk: The possibility that the customer may lose time as a result of the service or product failing. For example, the service requires extensive, time-consuming training.
- Opportunity risk: The chance of a potential gain by choosing another option over this one that is better or more reliable. Sometimes called alternative cost. For example, the client must choose one campaign idea and cannot do both.
- Psychological risk: The chance that the purchase will not fit or be harmonious with the buyer’s perception of self. For example, a teenager may want a car but a minivan isn’t consistent with their self-image.
- Social risk: The fear of losing reputation or being disliked. In certain professions, social capital is critical why social risk is higher there. For example, a computer system at a hospital getting hacked might lead to sensitive information being leaked and damaging the public’s trust.
- Physical risk: The likelihood that the product or service will cause physical harm. Examples include tools that break and cause injury.
Update! We have published a handy guide infographic to perceived buyer risks and how to overcome them.
As you can see, perceived risk scenarios can combine multiple risks. A hypothetical compromised IT system will lead to time loss and social risk, which leads to financial loss as the company loses customers.
How Buyers Are Mitigating Perceived Risk
Buyers employ a range of methods and strategies to mitigate the impact of perceived risks. Those of us who provide IT services are familiar with bidding processes. It’s one of the ways to reduce perceived buyer risk. Sellers aren’t too keen on those and often argue that they are irrelevant and ineffective. They aren’t wrong. The role of these processes is, after all, to mitigate perceived, not actual, risk.
Some perceived risks can be mitigated using insurance and contract conditions. But not all risks can be reduced this way. Lacking ways to evaluate sellers, buyers rely on proxies to determine the least risky option. These are some common proxies that buyers use to minimize perceived risk:
References and Testimonials
Examples are other buyers making supposedly unbiased statements as to the efficacy or reliability of the seller. References can be in the form of case studies written with the client or written testimonials. Client quotes are known to be highly effective in the digital marketing of services though they need to be done right.
Company Financials
The reasoning goes something like this: “A company that has been around a long time and shown stable growth is more likely to be around in the next five years. It probably has many satisfied repeat customers too.”
We all know that logically, growth and customer satisfaction aren’t co-dependent. However, lacking other factors, this is something a buyer would consider. Why if your company has an uneven financial track record, it might be wise to have a good story or explanation should the buyer ask.
Brand and Workplace
Lacking other ways to judge options, appearances will matter. That’s why you need to keep your website shiny and impressive. The same goes for your office space. This is due to a principle known as fluency. It doesn’t mean that you need to implement a strict “clean desk policy” (most people hate those and rightly so) right away. Just be aware that your workplace culture and appearance will influence buyer decisions, even if it happens subconsciously, and try to be tidy.
Dress Code and Behavior
Many years ago I was working with another consultant on an assignment for a client. We spent one day planning the work ahead and took turns presenting our ideas and solutions. At one point, the other consultant stood with his back to the client for many minutes while talking and pointing at the whiteboard some meters away. It’s not the kind of behavior that builds trust and mitigates perceived risk.
Many consultants frequently forget that how they act is an integral part of their job. They aren’t aware of table manners when lunching with clients or use proper etiquette. Small things matter. You don’t have to look like a million bucks, but you need to dress appropriately and behave well to be trusted.
How Agencies and Consultancies Can Reduce the Impact of Perceived Buyer Risk
Sellers of credence services need to counter all of these risk mitigation strategies. There are some suggestions above such as having polished marketing materials and behaving professionally. These are actionable and implementable. However, what underlies all of them is company culture. These suggestions will all be for naught unless your company focuses on the customer experience.
As professionals, we have a completely different understanding of the work we do, compared to buyers. To us, what we provide isn’t always credence services. To us, they often fall in the experience category. All thanks to our skills, experience, and perspective. We understand the value of our work and the impact we can have. Wise agencies share their knowledge with their potential clients, early and often and educate them.
The True Benefits of Breakfast Seminars
A popular trend in recent years has been breakfast seminars. During one of these, an agency or consultancy presents a project together with the client. They usually take place between 7 and 9 in the morning and include coffee and breakfast fare. These are popular with many buyers as it’s an effective way to start the day.
At a glance, such a seminar might seem to be about showing off the deliverables and bragging about the client they landed. However, if you go a bit deeper, you’ll realize that the seminar’s role is actually to educate the audience about the value of the agency’s services.
When done right, such seminars boost the agency’s pricing power. They also help mitigate perceived risk for future clients who will feel more confident buying from an agency that can show results. But not just impress, the seminar helps prove that the agency understands what the client values.
Guiding Early Stage Buyers That Lack a Solid Case
All that is well when it comes to buyers with a problem-solution mindset. However, in reality, the root of many buyers’ uncertainty comes from a lack of understanding of the potential benefits of a credence service. Their lack of knowledge leads to them approaching agencies and consultants with an underdeveloped case. Many agencies that fail to correctly qualify the buyer for a sales conversation attempt to pitch ideas. That’s doomed to fail. Those potential clients haven’t come far enough to approach with the traditional pitch. As a result, there’s been much complaining about “immature buyers” when we could, in fact, blame the seller equally for failing to educate.
The buyers who have a more vague understanding of what the agency can do for them aren’t without value, however. A smart agency or consultancy would approach them and start reducing their perceived risk. They would do it by educating them on how to buy credence services. For example, you can minimize risks in IT projects by using a range of methods. These methods work from end impacts to derive specifications for the project. I will return to how to use these methods in future posts. Sign up for our newsletter to make sure you won’t miss them!
We Buy With Guts, Heart, and Mind
In the end, the buyer will choose a seller based on emotions and intuition. They will then use rational arguments to justify the decision. As a seller, you need to mitigate perceived risks by making the buyer feel comfortable and trusting. You also need to provide logical arguments supporting your case.
Summary
Buyers cannot easily evaluate credence products and services. Buying such services is difficult as it’s hard to make an informed choice and puts the buyer at more risk. The buyer also needs to mitigate several perceived risks. Many do this by subconsciously relying on proxy factors, such as agency workplace tidiness (fluency), that may not always be relevant for the services they are buying. As sellers, we need to recognize these perceived risks and help reduce them. We also need to help buyers better understand the potential benefits of what they’re buying.
Do you have a story about a sales situation where credence goods played a role? What did you do to win the buyer over?
Please post a comment. I read all the comments.
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