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Logical, Loyal, or Just Plain Dumb?

By Jack Malcolm / 1.24.2014 / No Comment

If only it were that easy…

Next month I will get my renewal notice in the mail for my Dolphins season tickets. My wife and I have had the tickets for almost 30 years, but very year for the past half-dozen or so I’ve struggled with the decision. It should be a no-brainer: I’m unhappy with the performance of the team, don’t see much evidence that it will change soon, and quite frankly don’t enjoy attending the games nearly as much as I used to.

But so far I keep forking out the money, and I blame a mental bias called the endowment effect and its close relations, status quo bias and loss aversion[1]. The endowment effect means that having ownership of something makes us value it more; we ask for more to give something up than we would be willing to pay to acquire it. If I were completely rational, my decision would not be swayed at all by the fact that I already own the tickets. Decisions only carry consequences in the future, so what’s in the past should have no effect at all. If I were not already an owner, and I received an invitation to buy tickets for the very same seats at the same price, would I buy? That should be the question I ask myself. I know the answer is no, but I persist in making the same flawed decision every single year.

The patron saint of scientific persuaders, Daniel Kahneman, ran an experiment once in which students were put into three groups chosen at random. The first group, called “Sellers” were given attractive coffee mugs with the university insignia on them (which they knew were available at the university store for $6), and given the option of selling them at any price they wanted. The second group, called “Buyers”, were given the option of bidding on the mugs at their chosen price. The third group, called “Choosers” were given the option of receiving a mug or a certain amount of cash at their chosen price. Here are the results:

Sellers $7.12

Buyers $2.87

Choosers $3.12

What do the numbers mean? First, most people would not buy a mug for more than $2.87, but if they have one, they would not part from it for less than $7.12. It’s a wonder anything ever gets sold. But the Sellers and Choosers comparison is even stranger, because it’s exactly the same choice! Both groups could go home with either the mug or the cash, but possession of the item made it more than twice as valuable.

Here’s a specific negotiation example of the endowment effect in action. A friend told me about some work done for his organization, in which the architect had gone beyond the original instructions and over-designed the project, leading to unexpected cost overruns. There was an outstanding balance on the original contract of $5k, but the architect then sent an additional invoice for an extra $15,000 of work over what he had agreed to. John called him to protest, but the architect would not listen, so John said, “Listen, I’m getting ready to leave for the airport, and I have a check for $5k I’m going to put in the mail right now, and that’s it. But if you don’t agree, I’ll tear up this check and you won’t get a penny.” The architect asked how much time he had to think it over, to which John replied, “Ten seconds.” He took the money.

When John said he was going to give him $5k, that registered in the architect’s mind as ownership. In this case a bird in the hand was worth three in the bush to him, because a guaranteed $5k trumped a speculative $15k.

Knowing about the endowment effect is useful in selling. If you can get the buyer to take mental ownership of your solution by envisioning what life would be like with it, they are likely to be more tenacious in holding on to it when it comes time to decide. In my own selling, I’m sometimes asked if I can shorten a particular course. Because I won’t compromise on quality by trying to rush things, I say, “Sure. Which modules do you want to take out?” When they try to answer that question, they find it hard to part with the parts they already “own”.

When you think about it, you can see the endowment effect in action almost everywhere, such as holding on to investments too long, keeping long-held opinions long past their sell-by date, sticking to flawed strategies because they are “our way” of doing things, etc. As Oliver Wendell Holmes said:

“It is in the nature of a man’s mind. A thing which you enjoyed and used as your own for a long time, whether property or opinion, takes root in your being and cannot be torn away without your resenting the act and trying to defend yourself, however you came by it.”

Of course, just because it’s irrational, doesn’t mean it’s wrong; without it, the world would be a much more unstable place, divorces would be more common, and so on. Some people would call it loyalty.

So, next month–will I be logical, loyal,, or just plain dumb? Stay tuned…

[1] Or it may be because if I do give up the tickets, and they end up having a great season, I’ll feel foolish. (Although given their track record, that’s not very likely to happen.)

Sales

What Makes You So Smart?

By Jack Malcolm / 1.23.2014 / No Comment

The key premise of consultative or insight selling is that the salesperson can bring new ideas to clients to show them how to improve their business. Put another way, they can bring solutions to problems the clients don’t yet know they have.

But what gives you the right to do that? What gives you the right to approach someone who has been wrestling with a problem for a long time, and claim that you know something they don’t? What makes you so smart?

It’s a good question, and you know that your clients and prospects will be asking it.

To paraphrase Will Rogers, “Everyone is smart, only on different subjects.”[1] Your perspective is what makes you smart enough to bring insights and tell clients what is good for them. You have three perspective advantages your clients don’t have:

Deeper: The product or service you are selling, and the problems you deal with are your bread and butter; they are well known to you. Unless it’s a recurring purchase, your client may be facing the decision for the first time. Your specialized knowledge makes you smarter than them—at that particular topic.

Wider: Your clients may each individually know a lot about their own industries or geographies, but you—and your company—have a wide variety of clients in different industries and different geographies. Even if you’re facing a novel situation, you have access to a network within your own company and client circles that may have special experience or insight into the problem or opportunity.

Longer: If you’ve been in your position long enough, you’ve likely developed the expert ability to recognize patterns in situations that gives you an intuitive feel for the right way to proceed in solving a problem.

It all adds up to the special advantage of tacit knowledge: There is a widespread misconception that all you need to know is available through search engines, so it’s easy to get intimidated when experts tell you that your prospects have already completed X% of the evaluation process before you get involved in the purchase. But the three advantages of depth, width and length that you have, give you far more knowledge than can be articulated or put into a database. Who is to say that one piece of information might not make the crucial difference between success and failure in the purchase decision? Sometimes, you don’t even know what you know—until the situation challenges you to get creative.

In summary, there are many ways to be “smarter” than your clients in the areas that matter to them. But of course none of these will help you if you are not continuously learning, staying on top of what’s going on in your industry, connecting with other like-minded people—in short, continuously adding to your store of professional expertise.

[1] What he actually said was “Everybody is ignorant, only on different subjects.”

Uncategorized

How to Move a Stubborn Ass

By Jack Malcolm / 1.22.2014 / No Comment

Donkeys are legendary for their stubbornness. And, because they weigh more than the average human, they’re hard to move when they prefer to stay put.

A tough audience

Does that sound like many of the people you might be trying to persuade?

I don’t claim to be a livestock expert, but I did see a technique on TV once that seemed to work pretty well (and we all know that if it’s on TV it has to be true). The donkey driver—for lack of a better term—had a long rope attached to the donkey’s halter, and looped it around the back of the donkey’s legs (behind the ass’ ass, in other words). When he pulled, the donkey felt a pressure from behind and did not associate it with the DD, so he began walking.

That’s not a bad image to keep in mind when you have to convince a stubborn individual or audience. It’s tempting to get right to the point, but if you attack their beliefs directly and forcefully, all you’re likely to do is make them even less inclined to move. So, you’ve got to loop around behind them. Begin your presentation by laying out their position, and your understanding of why they feel the way they do. This will either put them at ease or confuse them, but it won’t get them to automatically put up the shield. Show the ways that your position agrees with them: maybe you agree on ends but not means, or in degree but not quality.

When you have their attention, and possibly even a head nodding or two, then you can gradually nudge them out of their position. Maybe you point out inconsistencies, mistaken assumptions, new information that might let them change their minds without losing face or feeling like they’re being pulled too hard. The best result is that they feel like they are changing their own minds, not being forced into anything.

One caveat: Thinking of people who disagree with you as asses is probably not conducive to the kind of thinking you need to be able to express their position with any understanding, but the child in me couldn’t resist!

Sales

Seven Mindset Changes to Win the Price Battle

By Jack Malcolm / 1.21.2014 / 2 Comments

Let’s make a few adjustments

I recently wrote a post in which I said some unkind things about salespeople who immediately wave the white flag of surrender when they’re confronted with price resistance. In fairness, it’s one thing to criticize, and quite another to offer solutions. This article is a start.

If the first battle you have to win is the one in your own mind, the key to winning the price war is to go into it with the right mindset. Here are some modes of thinking that you may need to change:

From price to cost: In complex systems sales, price is often a small part of the total cost of using the product or service. That’s why initial price savings may end up being very costly over the life of the purchase. As a cabdriver in Vegas once told me: “I’m too poor to buy cheap shoes.”

From cost to investment: Cost implies loss, investment implies a return. Focus on what the buyer will get out of the decision, not what they have to put in. If you see a promising investment, you don’t try to minimize how much you put in; you always want to put in more money.

From saving money to making money: If anyone was in business to save money, they could just shut their doors. Saving is only a means to an end, and it’s not always the best way to get there.

From wants to needs: Everyone wants a low price, but they usually need something more important. Your job is to know their situation so well that you can guide and teach them about needs they may not even be aware of.

From product to solution: People don’t buy products, they buy solutions to problems, some of which they don’t yet know they have. Focus on the problem and the price will recede in significance.

From pie slicing to pie growing: A lot of the mental energy that’s wasted in arguing over who gets the bigger slice of the pie may be better expended in jointly working on ways to generate more cash flow through imaginative ways of using the solution to improve their operations.

From defending your higher price to making the competitor defend their lower price: In a free enterprise system, sellers charge what the market will bear. If their price is lower, they must know something about their offer; make sure you and the buyer are asking the right questions.