In a business world where so many drop their price at the drop of a hat and then complain that margins are tight and it’s hard to make a profit, I find it strange that so few businesses give the consumer what they REALLY want when they ask for a price reduction, which is RISK reduction.

1. Reduce the Risk, Not Your Price
In a business world where so many drop their price at the drop of a hat and then complain that
margins are tight and it’s hard to make a profit, I find it strange that so few businesses give the
consumer what they REALLY want when they ask for a price reduction, which is RISK reduction.
The money back guarantee, which is offered by EVERY business in this country (because if I’m not
happy I’ll take you to the Department of Fair Trading and I’ll win because the system is in all favour of
the consumer) remains the “forgotten value add”, yet one that is remarkably lucrative and at the same
time very inexpensive to implement (unless you give terrible service and disappoint your customers on
a regularbasis).
Why is this so? Simple. Because most businesses look at the downside of the guarantee, not the upside.
The downside of the guarantee is “the ratbags are going to get us” and that is true, a very small number
of people are going to exploit your money back guarantee. But guess what? The ratbags get you any
way, whether you offer the guarantee or not! What about the upside of the 99+% of people who are
impressed by the money back guarantee and NEVER TAKE UP THE OFFER? Presumably because the
product or service lives up to expectations. Sadly, in this country we market at the people who are out
to rip us off instead of the people who are putting money in our pockets and that’s just DUMB!
You want real world examples? I have plenty.
I was working in the nursery industry and one of the franchise owners had the misfortune of a chain
store opening up right next door. He couldn’t compete on price (he was 30% more expensive) and he
didn’t want to.
So what he did was he put up a big sign as an anti-opening sale that said “We offer a 12 months
unconditional money back guarantee. If you buy a plant form us and it dies within 12 months, whether
you kill it or the plant is faulty, bring it back and we will give you your money back or replace the plant
free of charge”.
The franchise owner was really happy with how his sales went during the opening sale of his
competitor that at the end of that six week trial period for the guarantee sign, he decided not to take it
down and he left it up forevermore.
Now, here’s the point. After having the sign up for 12 months he analysed his business and he didn’t
have to give any more refunds in the course of the year he had the sign up than he did in the course of
the previous year when he didn’t have the sign up – yet his business improved significantly. Why? I’ve
always said that business is about understanding human nature not tricky marketing – and human
nature says that the value is in the offer, not the delivery. How many people do you know that are
going to turn up seven months later with a dead plant demanding their money back? Very, very few, if
any. That’s how many!
How do they sell puppies to children? You go to the pet shop or markets and your kid falls in love with
a little dog. Now, if the pet shop owner has any brains he says “Your child obviously loves that puppy.
Pay for it and take it home and if you’re not happy bring it back on Monday and we’ll refund your
money and put it to death in front of your children” (that’s just a joke by the way, I don’t advocate
euthanasia as a marketing strategy). Still, very, very few people bring the puppy back. They just want
the reassurance that they can.
But the greatest suckers on earth when it comes to guarantees are golfers (myself included). You don’t
believe me that golfers are the greatest suckers on earth, read a golf magazine. There are ads in golf
magazines that say “If you don’t get a birdie on the first hole with this magic new golf club, we will
refund your money” and these ridiculous ads work on us idiot golfers.

2. Why? Because the golf equipment companies know they are not selling golf equipment. They are
selling HOPE TO THE INEPT! And people will pay a lot more for hope than they will for a golf club.
Let me share a personally humiliating true story that reinforces this point.
Many years ago my golf pro had a $500 driver in the window (that used to be a lot of money to pay for
a driver). I was hitting the ball pretty badly but I said to the pro “I’m not paying $500 for a driver”. He
replied that he had a trial club that I could have a hit with for 18 holes and if I didn’t like it I could
return it and give someone else a go. As luck would have it I hit it really well and at the halfway break
in my round I went into the pro shop and said “I’ll buy it”. The pro was walking out the back and I said
“where are you going?” The pro said “I’m getting you a brand new one” I said “I don’t want a new one.
This one works” (any golfer will tell you that’s normal behaviour). In fact, I’m not suggesting I am
paranoid but I left the words TRIAL CLUB on it for two and a half years because while the thing thinks
it’s a trial club, it knows as soon as it stops working it’s going back into the pro shop!
Now, the point I’m making is that the pro could have taken 20% off the price and I wouldn’t have
bought the club but by giving me a free trial or unconditional money back guarantee I am very happy
to pay full price once the product has demonstrated value.
Surely, this can apply to your business.
I was at darling Harbour with my wife and children one Sunday and it was time for coffee (my wife
lives for cappuccino). In a large food hall there were five places we could have bought a coffee. One of
them had a sign that said something like “Best cappuccino in Darling Harbour or your money back”.
VOOOM. That’s where we went. Now, this place was pretty full and the other four places were pretty
empty.
I happened to ask if the boss was working that morning and, by chance, he was. When he came over I
asked him how long he’d had the guarantee sign up for. He said “two years”. Then I asked him how
many refunds he’d given in that two year period. He replied with a big smile “five”. I walked away, also
with a big smile. That guy is clever.
His place is doing terrific and how many people do you think are going to sample all the coffees just to
get a refund from him because his is not the best in Darling Harbour. The perception is that his coffee
is the best because he puts his money where his mouth is.
Guarantees can extend to further than product performance. One of my clients in real estate
guarantees communication during the sales process i.e. if we don’t return your phone calls within three
business hours, we refund $200 of our fees every time we fail to do so. A building client of mine offers
a “no surprises” guarantee i.e. if the cost of the project blows out through no fault of the customer (like
changing plans), the builder pays the blowout. A grocery retail client of mine offers a “double your
money back guarantee” on fruit, vegetables, meat and deli products because his competitor advertises
a 100% money back guarantee. All of these businesses have demonstrated profitability improvements
as a result of the implementation of the guarantees.
Think hard about your own business. Are you communicating the money back guarantee that you
probably already offer to your marketplace? And are there some novel ways you can improve the
perception of your business by guaranteeing what your competitor doesn’t?
In this ever increasingly competitive and price preoccupied world, let your competitor reduce his price,
you reduce your customer’s risk.
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