Salespeople and customers are both biased. How can we use this to better satisfy the customer's needs while improving the profitability of our businesses? This presentation explains how.
Andrew Hingston
3. Gains and lossesNegative comparisons Ownership Expectations Costs Anchoring and adjustment Free! Commitments Self-serving Status quo Bias 3
4. Who should be happiest? John Has $300,000 4 David Has $500,000 Barry Has $1,000,000 Had $200,000 Had $500,000 Had $2,000,000
5. 1. People focus on and gains losses Value Value ofgain gains losses Value ofloss Prospect TheoryKahneman and TverskyNobel Prize 2002 5
6. 6 1. People focus on gains and losses Which do most people prefer? $25 lottery win$50 lottery win $75 lottery win Lesson: If overall gain then separate them (don’t bundle them)
7. 7 1. People focus on gains and losses Which do most people prefer? $25 fine$50 fine $75 fine Lesson: If overall loss then bundle them (don’t separate them)
8. 8 1. People focus on gains and losses Which do most people prefer? $25 fine$50 lottery win $25 lottery win Lesson: If overall gain then combine gains and losses
9. Which do most people prefer? 9 1. People focus on gains and losses $25 lottery win$50 fine $25 fine Lesson: If overall loss then separate gains and losses
10. 1. People focus on gains and losses Customer communications Premium service ‘taken for granted’ Combine small price increases with good news ‘Standing room only’ close ‘Last chance’ close 10 Applications?
14. When customers go cheap Basic $20,000 14 Premium $30,000 Decoy $40,000 Premium+ somethingnot valuable
15. 2. People are influenced by negative comparisons 2 options ... most go cheap 3 options ... most go middle Motor vehicle models Real estate agents show overpriced first Magazine subscriptions 15 Applications?
17. 3. People are biased by ownership Test drive a motor vehicle Overvalued homes Selling via auction Try before you buy 30 day money back guarantees 17 Applications?
19. 4. Expectations influence experience Taste tests such as Pepsi vs Coke Restaurant menus and fitout Movie reviews Placebo effect with medicine First impressions with people 19 Applications?
21. People are biased with costs People fail to ignore sunk costs Time, money, other resources already spent People fail to consider opportunity costs Time, money, other opportunities lost if go ahead 21
22. Cost of a 1 year holiday? 22 Consider opportunity costs Costs Original price of caravan* $20,000 Current value of caravan* $10,000 Food $10,000 Petrol $5,000 Other expenses $5,000 After-tax salary lost $40,000 Mortgage payments $20,000 Market rent on house $10,000 * You already own the caravan
23. 5. People make decisions based on the wrong costs Most people’s garages and wardrobes! Projects continued for too long Customers sticking with a rival product Paperwork versus generating new leads 23 Applications?
24. 6. Biased by anchoring People anchor on the first numberthat they hear … then adjust too little withany new information 24 $10,000 $9,900 $9,850 $9,830
25. 6. Biased by anchoring and adjustment On-road price with extras JB-Hifi and the first LCD-TV you see Easier with unique product-service bundles 25 Applications?
26. 7. Biased by the word … Free! 26 Time, cost, effort, better options
27. 7. Biased by the word Free! Amazon Free! shipping vs $0.10 shipping Buy two get one free Free!$10 gift voucher vs $20 voucher for $5 People queue for hours for Free! tickets 27 Applications?
29. Car salespeople ask for a commitment to buy if they meet your price. People more likely to do something if they give a commitment with a deadline. 29 8. Honesty is influenced by commitments Applications?
34. 9. Self-serving bias Something good happens to me GOOD SKILL Something good happens to you GOOD LUCK Something bad happens to me BAD LUCK Something bad happens to you BAD SKILL 34
35. 9. Self-serving bias Above average at sport and investing Excuses versus solutions Fault for problems during installation 35 Applications?
36. 10. Biased towards status quo “Status quo, you know, is Latin for ‘the mess we’re in’.” Ronald Reagan People need compelling reason to changefrom established behaviour. They leave ‘doors’ open for too long. They lack self-control to see decisions through. 36
37. 10. Biased towards the status quo Free trial offers Routines help self-control Making verbal commitments with deadlines Common closing techniques: Assumptive close Alternative closes Order blank closes 37 Applications?
38. Gains and lossesNegative comparisons Ownership Expectations Costs Anchoring and adjustment Free! Commitments Self-serving Status quo Bias 38
