04/24/19

How Understanding Risk and Control Can Improve Your Relationships

Relationships, whether personal or business, can be boiled down to one concept: give and take. In modern social psychology, give and take means we evaluate our relationships through a conscious or unconscious cost-benefit analysis and modify our behaviors accordingly.

How can this explain why a customer would pay significantly more for a car at a dealership than an identical car listed on an online marketplace like Craigslist?

One relationship dynamic often overlooked in the cost-benefit analysis is risk-control tolerance. This is how we describe the trade-off buyers make between the degree of risk associated with a decision or behavior and the level of responsibility (control) they are willing to exert to minimize or manage that risk.

Imagine you are buying a used car. There are two potential places you could buy one: a licensed dealership or on Craigslist. For the sake of this example, let’s assume you find an identical car available on each.

On Craigslist, the car has a significantly cheaper listing price but also an increased risk associated with the purchase. To manage that risk, you exert a higher level of control by increasing the intensity of the evaluation behaviors, such as taking the car for a longer test drive, thoroughly examining the car and its parts, asking for solid vehicle histories and even getting the car appraised by a third-party expert.

When buying through a dealership, the same car is more expensive, yet the evaluation of the car is much less rigorous than in the previous example. There is an inherent assumption that the car will be in good condition because it is sold through an established brand or institution. Therefore, you may feel there is less risk with this purchase; this reduces the need to exert as much control, so the evaluation process is much less intense.

By understanding risk-control tolerance and the nature of relationships, you can better meet their unspoken needs and expectations.

On one end of the spectrum, there are low risk, high control clients. These clients or customers have a lower risk tolerance and are motivated to exert more effort (high control) to manage or prevent negative outcomes themselves. Clients or customers are low risk, high control because of a natural risk aversion or when tasked with a high-stakes project. In this dynamic, a successful relationship and outcome are dependent on your ability to allow the client or customer to establish a sense of control, a feeling of managing the perceived risk.

These relationships are often high touch — thriving on frequent communication, collaborative processes, flexibility in deliverables, research-based approaches, and access to information materials such as white papers, brochures, dashboards, or monitoring tools. These clients or customers tend to be receptive to prominent calls-to-action or suggested behaviors, especially when trying to get upstream of decision-making processes.

On the other end of the spectrum, there are high risk, low control clients or customers. These individuals have a higher tolerance for risk (high risk) and will give up substantial control (low control) by delegating many aspects of the relationship to a provider or brand – the expert.

These clients or customers are willing to exert low control over the outcome because they have a higher risk tolerance, low perceptions of potential negative outcomes or very high trust in the relationship. While communication remains important for all relationships, communication that is too frequent or involved can threaten perceptions of a provider or brand as the expert and diminish trust in the relationship. When this happens, the other party may feel the need to take back control (e.g., “babysit” a vendor), switching the risk-control dynamic.

Most relationships fall somewhere on the spectrum of these two extremes. To better align the desired relationship between your brand or offering and your target audience, it is critical to understand how much risk an individual is willing to accept vs. how much control they’ll take on (or give up) to achieve that balance.

Understanding the give and take goes beyond simple cost-benefit-based analysis, it is essential to manage perceptions of control and risk to ensure successful outcomes and relationships… or prevent failed ones.