Demonstrations and money-back guarantees: market mechanisms to reduce uncertainty

This paper analyzes consumer, retailer and manufacturer preferences for and use of two important risk reduction tools: money-back guarantees and demon strations. Theoretical findings from economics, marketing, consumer behavio r and psychology are integrated to analyze the performance of these mechani sms under various conditions and product characteristics. The paper investi gates the relationship between these two risk reduction mechanisms and reve als in which ways the two are complements or substitutes, identifying under which conditions money-back guarantees and demonstrations will be used sep arately, together, or not at all. (C) 2001 Elsevier Science Inc. All rights reserved.