Learning Risk Reversal In MBA

“A ship is safe in harbor, but that’s not what ships are for.”

John A. Shedd

This week, I’m discussing another MBA concept: Risk Reversal. When a customer buys your new product, they’re taking a risk. They haven’t used it before and don’t know if it’ll work as expected. They might believe your product is good, but there’s always the chance of failure in their eyes.

Risk Reversal helps reduce this uncertainty. A common strategy you’ve probably seen with tech products is offering warranties. If the product fails within a year, we replace it—simple Risk Reversal.

But what about non-tech items? Especially expensive ones? Some companies offer an interesting solution that some may abuse but could be beneficial overall: Pay for the item and use it for six months; if you’re not satisfied, bring it back for a refund.

Warranties are often tech-specific solutions. For other items like beds or furniture, this “trial period” method works well too. While customers may still harbor skepticism, knowing they can return unsuccessful purchases makes them more comfortable buying from you in the first place.

Even if something goes wrong with your purchase later on—you can return it and get your money back or receive a replacement item—it gives customers confidence to buy without fear of loss.

Pricing details related to these strategies will be discussed later. Until next week!

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