Practical Eloquence Blog

Three Ways to Deal with Uncertainty and Risk in Buying Decisions

By Jack Malcolm / 6.21.2019 / No Comment

When buyers make a choice, especially about a high-value purchase, they balance three considerations: cost, benefit and risk. What will it cost me to buy this or do this? How will I benefit or what will I get in return? What risks am I taking?

As the author of Bottom-Line Selling, I know how effective ROI calculations can be in driving buying decisions, but even I have to acknowledge that, of those three questions, risk is by far the quirkiest and most slippery concept to get a grasp on psychologically, because there are so many factors at play, many of which simply can’t be precisely defined or measured.

At the risk of stating the obvious, every decision carries a risk, so if you want to sell a product or convince someone to approve an idea of yours, you need to understand how to deal with it, and even how to use the psychology of risk in your favor. Let’s examine how they think and feel about risk, how that affects the choices they make, and how that affects your approach to selling them on your idea or solution.

Why uncertainty is complicated

To be perfectly precise, risk is not the problem—uncertainty is. What’s the difference? Risk is generally known and quantifiable. It may be exact, as in a game of chance, or it may be inexact but reasonably well-known, such as by looking at historical performance. Uncertainty is about not knowing the odds, such as a completely new technology for which there is no known market. Most buying decisions contain some of each.

Even when the risks are exactly quantifiable, people may differ in how they interpret those risks. Some may have a higher appetite for risk because of their personality, or because their situation dictates it. When you’re playing with house money, you may be willing to take larger risks, or you may also may be willing to take larger risks at the opposite end, when you are completely desperate. Where you are in the corporate hierarchy may play a part: what may be a career-limiting wrong decision to a low-level buyer may be a rounding error to a senior-level decision maker.

And that’s when the risks are fairly well quantified. Imagine how much more difficult it becomes when you cross the line from risk to uncertainty. The human mind is not built to calculate the optimum risk/reward choice, even when it has complete information, which it almost never does. So buyers take shortcuts when they evaluate risk and uncertainty, and when you understand those shortcuts, you can jump ahead of them and use them to increase your chances of winning the sale—lower your risk of loss, in other words.

Some psychology – mental shortcuts that buyers take

There is so much more to the psychology of risk than I can cover in one post, but here are three of the most important.

Gain/loss framing

Appetite for risk is dependent on how the decision is framed. According to prospect theory, people are more willing to incur risk to avoid a loss than to reap a gain. For example, most people will not voluntarily accept a one-time coin flip in which they stand to lose as much as they can gain. Potentially losing $100 feels worse than the happiness of winning $100 on an even bet, so most people impose a ”loss aversion ratio” between 1.5 and 2.5.[1] That’s why you may need to spend less time touting your benefits and more effort in helping the buyer realize what they stand to lose if they don’t buy your solution.

In other words, don’t downplay risk, reverse the risk. Get them to think about what they may stand to lose if they go with an alternate choice.

Here’s one example: Suppose your buyer asks you to justify why your price is higher. The standard response is to answer their question directly, by explaining your differentiators and connecting them to benefits; in other words, by telling them what they get for the higher price. That may work, if your benefits are quantifiably better than the price differential, but because of prospect theory, you’re probably going to have to show them at least $2 in benefit for every $1 in price difference. (It’s probably more than that, because the higher cost is certain, and the expected benefit is never guaranteed.)

So, how do you counteract this tendency? You have to focus their mind on what they might be losing by giving up the promise of quality that a higher price brings. Instead of telling them why your price is justified, ask them why the competitor’s price is justified. In a free market, companies charge what the market is wiling to pay, so if they are competing on price, it must be because they know they are not offering the same benefits as higher-priced products. Simply by asking the question, you may get them to shift the focus from the financial risk of a higher price to the potentially greater operational risk of not getting what they need.

Numbers perceived differently depending on how they’re presented

How the numbers are presented has also been shown to affect how the risk is perceived by the decision-maker. Take a hypothetical situation, where your customer faces a problem that results in failures in 30.5% of cases, and is very costly when it happens. You show them historical data that proves that using your solution cuts that down to 26.4% of the time. Is it worth it for the buyer to incur the risk and cost to apply your solution? How would you present the data to improve the chances they will buy?

You could say your solution is 4.1% better.

You could also perfectly honestly say that your solution is 13.4% better. (4.1/30.5 = 13.4%)

When these descriptions were tested with highly educated professional decision makers, 56% chose to try the new solution when it was presented the first way, and 76% chose to try it when it was presented the second way. That may not sound too surprising, except that in the real world scenario in which the study was done the choices were actually between two medical procedures, the “failure” was patient death, and the decision makers were doctors, whom one would presume would know better. (The literature shows that there is little or no correlation between education and risk assessment.)[2]

Here’s another example: your solution is 99.9% reliable; theirs is 99.8% reliable. You can easily and honestly make a case that yours is twice as reliable! Your solution results in 10 failures per thousand, theirs fails 20 times. If the reliability measure is dropped cell phone calls, that may not be worth paying a premium for, but if it’s a measure of how often a critical machine might fail, it could be huge.[3]

It gets even stranger. The general rule is that the more abstract it is, the less impact, and vice versa. That means that if you want to play down the risks of something, talk about percentages. Next is frequency, or actual numbers: A disease that kills 1,286 out of 10,000 was judged worse than one that kills 24.14% of the population.

So, when describing the risks of competing alternatives, use actual numbers to describe theirs and percentages to describe yours.

Sometimes numbers may actually be irrelevant. It’s called denominator neglect. If you go swimming offshore, you may “know” that your chances of being bitten by a shark could be 1/1,000,000. But you don’t think of the million, you think of the one—because it’s you. On the positive side, I almost never buy lottery tickets, but every time I do, I don’t think of the odds; I envision what life would be like with a few extra million in my bank account. So, if you want to increase the perceived risk of a rare event, get them to imagine what it would be like for it to happen to them.

Imagination plays an important role – either dial it up or dial it down

That’s because imagination easily trumps statistical reasoning. One great example is, imagine a world in which smoking cigarettes was perfectly healthy, except that 1 in a million packs of cigarettes contained a cigarette loaded with dynamite. With 250 million packs sold a day, 250 people would have their heads blown off every single day. You could imagine how quickly the authorities would ban the sale of cigarettes! Yet in real life, cigarettes kill an estimated 3 million people per year worldwide, or more than 30x that, and the only thing we do about it is put warning labels on cigarette packs.[4]

The more easily we can envision something, the more real it seems. One way to make risk more salient in someone’s mind is to get them to imagine the consequences or costs of the risky event actually happening.

A close cousin of vividness is personification—make it personal. Imagine that was someone you know getting the unlucky cigarette. Ads showing a photo of a starving child get more donations than ads providing information about a thousand starving children—even more so than ads that feature both a picture and statistics!

To summarize, dealing with risk may be the most difficult part of your sales messaging, but precisely because it’s the most difficult is why you should pay close attention to it. What if you don’t and your competitor does?

[1] Daniel Kahneman, Thinking, Fast and Slow, p. 284.

[2] Adapted from an actual study reported in Calculated Risks, by Gerd Gigerenzer, p. 203.

[3] See also this example, about cancelled flights.

[4] Adapted from Intuition, by David G. Myers, p. 209.

Podcasts - Success

How To Sell Yourself Without Selling Your Soul

By Jack Malcolm / 6.12.2019 / No Comment

Podcast: Play in new window | Download

There are people who love to talk about themselves all the time, to be the center of attention, the name on everyone’s lips. We know plenty of people like that; you may be one of them yourself. If you are, you can skip to the second half of this article.

If you’re like me, or like some of my clients who seek advice on how to sell yourself without selling your soul, you probably need to read the whole thing.

Why don’t we like self-promotion?

There are a lot of reasons that some folks might feel constrained from touting their own accomplishments and qualifications. See if any of these ring a bell with you:

· We were raised not to brag. Maybe it’s a generational thing, but I definitely remember my Dad telling me that no one likes a show-off. It was part of the code that we were raised with. It just wasn’t done.

· It could be cultural. In New Zealand and Australian culture, for example, it’s called the tall poppy syndrome, as in the tall poppy gets cut down.

· Even in our own culture which is not known for being shy, it can feel a bit slimy, like you’re putting yourself over others, not being a team player.

· Some people lack confidence in their own abilities. This is especially true for women—they tend to underestimate their own abilities, while men overestimate theirs.

· There can be good practical reasons as well. It can backfire on you if you do it wrong or do it excessively.

The right approach requires the proper mindset, a clear idea of your own capabilities and strengths, and a plan to improve your positive visibility throughout the organization you’re part of. In this article, I’m going to concentrate on internal self-promotion, not external, such as what freelancers like myself have to do to publicize ourselves.

Adopt the right mindset

The first step is to adopt the right mindset. You don’t have to like it, but you do have to accept that it’s necessary.

A lot of smart and competent people I know subscribe to the better mousetrap myth—the one that says if you build a better mousetrap, the world will beat a path to your door. It just doesn’t work that way—good ideas and good work don’t automatically bubble up for everyone to notice, especially when there are others who are actively self-promoting—and possibly not being as principled about it as you are.

It’s a YOYO world—you’re on your own. You may think you’re not a free agent because you work in a large organization, but the reality is that no one is taking a special interest in advancing your career, and If you don’t do it, no one will do it for you. At the same time, people you are competing against are very comfortable doing it, so it amounts to unilateral disarmament on your part.

Any time someone considers you for a possible promotion, their first question is not: can this person do the job? It’s “Is this the best person for the job?” In other words, they don’t look at you in isolation, but in comparison to someone else, and they have to use whatever information is available to them. Who comes to mind first? If you take two people who have the same education, experience and job performance, it’s obvious that the one who has done a better job of selling themselves is going to win the job. But the world is less fair than that. Even if you’re objectively better in one or more of those areas, you may still lose out to the person who does a better job of selling themselves.

But if you only buy into the idea of self-promotion begrudgingly, you’re not going to do it as well as if you actually embrace it as a positive thing, and not just a necessary evil. There’s a good case that self-promotion can be positive, not just for yourself but for others as well. That’s because, if you truly believe that you’re the better fit for the task, or that you can add more value, to your team or your company, then you harm them by not making them aware of it. It’s like the basketball star who insists on getting the ball in the closing seconds: maybe it’s selfish, but it’s also the right thing for the team.

How to do it

If you were promoting a product instead of yourself, how would you go about it? You would first, figure out your market share, and how you are perceived in the market. Next, you would develop a value proposition for why people should be interested in your product, and finally you would create a plan to publicize and sell it. You can apply those same techniques to promoting yourself as a product.

Figure out where you are

If you want others to think well of you, the most obvious thing is to give them a reason to do so, which means that you should be worthy of a good reputation. But I’m assuming you’ve got that covered.

Know how others see you. You have a reputation where you work. People do talk about you when you’re not around. Do you know what they say? There’s an idea in marketing called the net promoter score, which essentially is the answer to the question: ”How likely are you to recommend our company/product/service to a friend or colleague?”

Obviously, we’re not going to send out a survey to figure out our personal net promoter score, but we’re not always good judges of how others see us, so we have to do a little research. We can ask a trusted colleague or two. Ask your boss, Get a coach.

Have a personal value proposition

Why should people “buy” you? Because you have unique competencies that add value. But they need to know about those. What if you got into an elevator with the CEO and he asked you what you do. Would you have an answer? A good answer, I mean. Not just, “I’m an analyst in the Finance Department.” “I make sure we keep out of tax trouble.” “I manage one of our most profitable accounts.” Or, talk about something you’re working on right now that you’re excited about and why.

Improve your visibility

· Speak up in meetings: always be prepared.

· Maximize executive contacts; be prepared for planned and unplanned encounters.

· Ask your boss.

· Network internally/strategically.

· Don’t just mind your own business. “Doing your job is not initiative.”

· Be a giver, not a taker. Show initiative in the white spaces between job descriptions.

· Join high-visibility projects and task forces where you can add value.

· Promote your team and others.

· Give speeches internally and externally.

· It’s ongoing; make it a habit or create a regular routine and schedule.

Leadership Communication - Lean Communication - Podcasts

Lean Communication for Leaders Part 6: Dialogue

By Jack Malcolm / 6.5.2019 / No Comment

Podcast: Play in new window | Download

If you want to be a more effective leader, remove the megaphone from your mouth and hold it up to your ear.

Why do you need dialogue in leadership communication? When you know what has to be done, isn’t it more efficient to just tell people what to do, and have them do it without bothering to question you?

The reality is that despite how hard you work to produce brief, clear and valuable messages, you usually need dialogue to close the deal—to ensure that the message has had its intended effect and to make adjustments if not.

Dialogue ties directly back to the first five episodes in this series: it’s enormously useful to keep you out of the three leadership communication traps, to add value, and to prevent waste.

Dialogue can prevent or mitigate the three leadership traps you may fall into. You’re less likely to rely on the ethos trap of “because I said so” when you welcome open questioning and disagreement. Empathy erosion is less likely when you’re having meaningful conversations with individuals rather than a faceless mass of followers. Control becomes both lighter and more effective for two reasons: everyone understands each other better, and you get a clearer picture of what’s happening outside your isolated corner office.

Dialogue can add value by producing better ideas, more vigorously executed. Better ideas result from productive disagreement and broader input from people with diverse viewpoints, experiences, and knowledge sets. Second, it gets people more engaged, and that makes them more productive.

Dialogue prevents waste through the clarity it brings, not only for your followers but just as importantly for you as well. Without it, you can’t be sure people understand your intentions, and you have no idea how your intentions translate into real world results. In a turbulent environment, situational awareness is critical, and that requires knowing what’s happening at the margins where the real work gets done.

Tools to improve dialogue

The simplest way to improve dialogue is to announce an open-door policy and mean it. But that’s passive, and it’s also reactive. It’s tempting to rely on reports and what your immediate reports tell you, but that information can’t help but be colored by filters and silos which may prevent you from getting a true picture.

So, regardless of how busy you think you are, you need to get out of your office and engage people at various levels. It’s called MBWA, Management by Walking Around, and it does two things for you. It shows people you care. At the same time, by being random it prevents people preparing for your visit and showing you only what they want you to see, Potemkin village style.

A more structured form of MBWA is going to the gemba, literally, the “actual place” where things where the value creation happens, in front of customers, on the shop floor, and in the offices. Toyota Chairman Fujio Cho suggests, “Go see, ask why, show respect”.

Some managers like to structure formal meetings where they get out and talk to groups. Just take care not to make them too large, because people will be less likely to speak up. Boris Groysberg and Michael Slind, authors of Talk, Inc., recommend keeping these meetings small—30-40 participants—because people are reluctant to speak up in larger groups. But here’s where the “show respect” part comes in: be prepared to be vulnerable, to admit that you may not have all the answers, and to accept criticism.

There’s a formal process in lean called hoshin kanri, also called policy deployment, in which strategic plans are cascaded to the appropriate levels to ensure consistency and alignment. Using a process called “catchball”, leaders toss ideas down a level, who then toss back their own input; it’s exactly the same process called backbriefing that military organizations use to ensure everybody aligns with the plan.

How to get people to open up

One of the major challenges of leadership dialogue is to get people to open up and speak their minds to superiors. In my previous podcast, I talked about the need to make it safe for people to bring up unpleasant news or disagree with the boss.

But safety isn’t enough, because people keep quiet for other reasons than fear of consequences. They may feel like it won’t make a difference, because no one will pay attention. They may be naturally loath to speak up to people they perceive as more powerful.

Even a well-meaning culture may discourage speaking out in certain circumstances. A strong data-driven culture may generally be a good thing, but when it prevents people from voicing their doubts because they don’t have hard data to back up their feelings, bad things may happen, as NASA discovered after both the Challenger and Columbia disasters.[1]

And then there’s the old idea of “don’t bring me a problem unless you have a solution.” It’s meant to tamp down griping, but it can also keep you from finding out about potential problems before they get out of hand. If someone sees a problem and doesn’t know how to solve it, do you really want them to keep quiet about it until they’ve figured out a solution they can present to you?

So when things seem to be going fine, you may need to draw people out. One of the best examples I’ve heard comes from Alfred P. Sloan, former Chairman of GM, who once ended a senior executive meeting by saying: “Gentlemen, I take it we are all in complete agreement on the decision here. Then I propose we postpone further discussion of this matter until the next meeting to give ourselves time to develop disagreement, and perhaps gain some understanding of what the decision is all about.”

Create a culture where people not only feel safe, but feel a responsibility to bring up bad news or disagreement. Lean factories have an andon cord, which any employee may—no, must—pull anytime they see a problem. It’s like the public service ads that say: “See something, say something”.

Informality is a helpful way to get people to open up because it reduces power distance—people feel freer to speak up when they are not blatantly reminded of the rank difference. That’s one reason that hierarchical structures such as Japanese companies and the Royal Navy encourage after hours karaoke and drinking, or dinners and outside team activities, respectively.

Informality doesn’t mean you have to trash the chain of command, just that you have the right balance. Rex Geveden, who made several critical decisions as he rose to assistant administrator of NASA, put it this way: “The chain of communication has to be informal, completely different from the chain of command.”[2]

Maybe one way to reduce the power distance feeling is to change the prepositions you use when you think about leadership. Instead of a vertical hierarchy that uses words like up or down, think of a circular structure, with you in the middle and followers out where the real work gets done. I love the way this Ritz-Carlton policy expresses it: “Push authority out to information, not information to authority.”

Here are some additional tips to make you a better listening leader:

Speak last. Let others express their opinions before they hear yours.
When people do speak up, listen carefully and fully; don’t rush to answer or solve their problem.
Draw people out. Frequently, the first answer out of someone’s mouth is not the best or the most candid, so invite them to say more. “Tell me more about that…” is a great phrase.
Practice responsive listening. Show people they’ve been heard.

I need to close with one final reminder: dialogue is not an abdication of leadership. Just because you’re listening to input does not mean that you have to accept it. It’s not a popularity contest, or mindless consensus seeking. You still have the responsibility to make the hard decisions.

But you will make better decisions and get better results when you engage your followers in purposeful and productive dialogue. In short, you will be a better leader.

[1] David Epstein shares valuable lessons from these episodes in his book Range: Why Generalists Triumph in A Specialized World, Chapter 11.

[2] David Epstein, Range, p. 262.

Success

Why I Keep Blogging When It Seems No One Is Paying Attention

By Jack Malcolm / 6.4.2019 / No Comment

I had the incredible honor of being able to pass on some life wisdom to the 2019 graduating class of Carol Morgan School in the Dominican Republic last week.

To be precise, I wasn’t physically there, and the words they heard did not flow directly from my mouth. They emanated from the lips of Distinguished Alumnus Miguel “Mike” Viyella ‘74, the Commencement Speaker.

Here’s the story, briefly. Mike and I attended Carol Morgan together from 4^th through the 9^th grades. We lost touch after my family left the Dominican Republic in 1972, but last October we reunited in Miami with three other classmates. At the time, Mike asked the group, “If there were some type of time machine that would allow you to give some advice to your younger self, what would it be?”

We had fun with that line of thought for a few minutes before moving on to something else. But the question stayed with me, and I went home and wrote this blog post: Letter to My Younger Self.

Last night, I received an email from Mike telling me that he had quoted my post extensively in his graduation address (and gave me full credit, of course). I was stunned and incredibly honored that my words made enough of an impact on him that he saw fit to use them for such an important occasion. (In fact, in my reply I broke my own longstanding rule against using more than one exclamation point in a single email!)

Set aside the fact that exactly zero of the people who knew me back in the days when I attended school there would have predicted that I would have any input at all in a future graduation speech—what made an impression on me is that something I wrote had enough of a ripple effect that it may actually make a difference in someone’s life, however far removed they are from me.

I’m not naïve. I know the vast majority of those graduating seniors forgot every word of Mike’s speech by the end of the party they went to that night—but you never know.

THAT is the best reason to keep blogging, even when it seems no one is paying attention. It’s not the number of page views or retweets or likes; it’s not even whether my “thought leadership” gets publicity for my business. If something I write helps someone learn something new, think a little differently about something, or motivate just one little change—that is good enough for me.

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