Businesses Built On Fear

By Mark Riddix | April 02, 2010 AAA

Have you ever purchased a product because you were afraid of what would happened if you didn't? Many businesses in the United States thrive due to the emotional response of its customer base. One of the top emotional drivers is fear. Fear can mean big bucks for a business.

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Customers - from individuals to the federal government - will pay top dollar for products that make them feel more secure. Fears have increased in the general public about identity thieves, burglars, natural disasters and diseases. While these fears may be legitimate, it doesn't change the underlying fact that fear can be a big boost to a company's bottom line. Let's take a look at a few of the industries that profit by selling peace of mind.

Identity Theft Protection Services
Do you worry about your social security number being stolen and thieves running up fraudulent charges using your credit? You are not alone. Millions of Americans live in fear daily of having their identities stolen. According to a study by Javelin Research, approximately 11.2 million Americans were affected by identity theft in 2009. They estimated that identity thieves defrauded victims out of roughly $54 billion in 2009. Enter the fast-growing field of identity theft protection.

Identity theft protection has become a multi billion dollar market in a relatively short period of time. Identify theft protection agencies offer to keep your personal information private for a fee. Identity theft protection companies provide the following services: credit monitoring, credit protection, theft insurance, fraud protection. These services typically charge customers hundreds of dollars a year to protect customers from identity thieves. (Learn how to protect yourself; read Identity Theft: How To Avoid It.)

Flood Insurance
After the rise in natural disasters over the past few years, more Americans are buying flood insurance. Many people who lost their homes in 2005 to Hurricane Katrina were not reimbursed for damages because they did not have flood insurance. In 2006 homeowners in the mid-Atlantic region was hit with four straight days of rain that caused millions of dollars of damage. The flooding was so severe that one county in Maryland suffered tens of millions dollars of damage.

Fear of losing homes, cars, and personal possessions to flooding has led to more people buying flood insurance. According to the Associated Press, residents in states known for flooding such as Minnesota and North Dakota have been rushing to buy flood insurance ever since the serious floods in 2009. (Learn more about flood insurance in Preparing For Nature's Worst.)

Security Companies
Most of us have seen the Broadview Home Security commercial in which a guy kicks in the door on the house of a mother and daughter. The robber is startled by the blaring alarm system and runs off, and then a security company representative phones to send the police and comforts the mother. Commercials like these are standard operating procedure in the security business. Security companies use feelings of fear and vulnerability in their ads to sell security systems and surveillance equipment. So, does it work? AOL DailyFinance states that Broadview's "fourth-quarter revenue jumped 7.5% to $145.4 million, while sales for 2009 rose 6.2% to $565.1 million. Net income for last year rose an impressive 9.8% to $63.7 million." The security industry knows one simple fact, fear sells.

Flu Shots
The pharmaceutical industry thrives on the fears of individuals. Take the H1N1 swine flu for example. The swine flu is a legitimate virus that has affected almost 60 million people in the United States according to the Center for Disease Control (CDC). There have, however, been accusations that the severity of the virus has been overblown. The CDC estimates that 12,000 people have died in the U.S. from H1N1. This number is actually lower than the mortality rate from the seasonal flu. The Washington Post reports that the World Health Organization is being investigated to see if the organization exaggerated the effect of the virus to boost sales of the H1N1 vaccine.

The U.S. government used only 91 million of the 229 million doses of the swine flu vaccines that the government purchased. The swine flu program cost the United States $1.6 billion dollars with much of that money going to pharmaceutical companies.

For-Profit Education
During difficult economic times, people often go back to school to improve their chances for employment or to maintain their current jobs. Fear of losing their jobs drives many people back to the classroom, and enrollment in undergraduate and graduate degree programs has increased during the economic downturn. The biggest beneficiary of rising unemployment is the for-profit education industry. For-profit education is a multibillion dollar industry. Online universities like the University of Phoenix, Strayer, and DeVry are all experiencing double-digit growth in enrollment. Attendees at these institutions are improving their skills and knowledge to make themselves more attractive to prospective employers. (Learn more in Invest In Yourself With A College Education.)

The Bottom Line
As you can see from the examples above, selling security is big business. Companies that develop solutions that help assuage fears will continue to rake in the profits for the foreseeable future.

If you're still feeling uninformed, check out last week's business highlights in Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics.

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