144 Year Old Example of Risk Reversal
I love shows like The Luxury Channel (via CNBC Australia on Foxtel) with stories about luxury goods, places and experiences from around the world.
Recently there was a story about the exclusive St. Moritz in Switzerland — especially its very famous winter season — the people, activities and stories.
In the report was the history of the luxurious and palatial Kulm Hotel, and how the winter season got started: with a ‘risk-reversal’ advertising guarantee! They didn’t describe it that way (it was called “a bet by the owner”) — but it was a very clever ‘risk-reversal’ guarantee.
Risk-reversal is where the perception of “risk” to the buyer is reduced because of the use of a particularly strong guarantee by the seller — helping increase response, as the buyer feels the seller is putting the onus on themself with an offer that is more favourable than usual to the buyer.
Confused? What that really means is this: the seller makes the offer more tempting by being willing to provide a strong guarantee: the buyer feels less at risk of losing out in some way by accepting the offer.
In the case of St Moritz’s winter season, as reported on The Luxury Channel, way back in 1864, Johannes Badrutt, the owner of the Kulm, offered this guarantee to British tourists to tempt them to come and visit St Moritz during winter:
That if it’s not true what I’m telling you — that it’s wonderful here during the winter time — then I will pay for your trip and for your stay.
That’s a confident guarantee — he’s so sure the buyer will love the place, that if they don’t, then they don’t risk any money because he’ll meet the cost of the trip and the stay.
Would you, as a tourist, now be more willing to give St Moritz a go, knowing that there was no money risk to do so?
It certainly worked — no such guarantee would be needed nowadays to get people to such a famous destination (as pictured looking at the Kulm Hotel in winter, above).
And it was certainly more “gutsy” back then to offer the guarantee, given there was not yet any winter activities at St Moritz — and visitors often stayed for quite a long period.
Nowadays we often see risk-reversal used to sell events such as big seminars — you’re guaranteed that if you get to a certain point during the event, decide it’s not worth it, the seminar host will meet the cost of both the event ticket and $500 in bona-fide travel expenses (or some variation of that kind).
Doing that implies you are confident of your product — which is another good way to improve your response. Of course, you better have a good product to ensure your guarantee doesn’t backfire.
What can you do in your business to create a risk-reversal guarantee to help improve your response?
PS: The Kulm Hotel people seem to have always had good marketing sense … the going rate for the Presidential Suite for one night is currently US$5,300, and the hotel was Switzerland’s first ever building to have electricity.
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This is great info to know.