selling to biased customers

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Biased

Selling to

Andrew Hingston

Switch Solutions

Customers

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BiasGains and losses

Negative comparisonsOwnership

ExpectationsCosts

Anchoring and adjustmentFREE!

CommitmentsSelf-servingStatus quo

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Who should be happiest?

JohnHas $300,000

DavidHas $500,000

BarryHas $1,000,000

Had $200,000 Had $500,000 Had $2,000,000

Value

gainslosses

Value of

gain

Value of

loss

1. People focus on and

Prospect TheoryKahneman and Tversky

Nobel Prize 2002

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gains

losses

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1. People focus on gains and losses

$25 lottery win$50 lottery win

$75 lottery win

Lesson: If overall gain then separate them (don’t bundle them)

Which do most people prefer?

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1. People focus on gains and losses

$25 fine$50 fine

$75 fine

Lesson: If overall loss then bundle them (don’t separate them)

Which do most people prefer?

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1. People focus on gains and losses

$25 fine$50 lottery win

$25 lottery win

Lesson: If overall gain then combine gains and losses

Which do most people prefer?

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Which do most people prefer?1. People focus on gains and losses

$25 lottery win$50 fine

$25 fine

Lesson: If overall loss then separate gains and losses

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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

Applications?

Culture

Relaxation

50%

50%

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Holidaydestinations

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Culture

Relaxation

20%

80%0%

Halo effectThorndike

People are biased by

comparisons

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When customers go cheap

Basic$20,000

Premium$30,000

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When customers go cheap

Basic$20,000

Premium$30,000

Decoy$40,000Premium

+ somethingnot valuable

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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

Applications?

Biased by

ownership

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Buy price Sell price<

Endowment EffectThaler

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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

Applications?

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Coffee or painkillers anyone?

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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

Applications?

what’s wrong20

with Andy Capp’s thinking?

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People are biased with

costsPeople fail to ignore sunk costs

Time, money, other resources already spent

People fail to consider opportunity costsTime, money, other opportunities lost if go ahead

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Cost of a 1 year holiday?Consider opportunity costs

CostsOriginal price of caravan* $20,000Current value of caravan* $10,000Food $10,000Petrol $5,000Other expenses $5,000After-tax salary lost $40,000Mortgage payments $20,000Market rent on house $10,000* You already own the caravan

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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

Applications?

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6. Biased by

anchoringPeople anchor on the first numberthat they hear

… then adjust too little withany new information

$10,000$9,900

$9,850$9,830

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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

Applications?

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7. Biased by the word …

FREE!

Time, cost, effort, better options

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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

Applications?

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8. Honesty is influenced by commitments

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• 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.

8. Honesty is influenced by commitments

Applications?

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9. Self-serving bias

Something good happens to me

Skill Luck

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9. Self-serving bias

Something good happens to you

Skill Luck

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9. Self-serving bias

Something bad happens to me

Skill Luck

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9. Self-serving bias

Something bad happens to you

Skill Luck

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9. Self-serving bias

Something good happens to me GOOD SKILLSomething good happens to you GOOD LUCKSomething bad happens to me BAD LUCKSomething bad happens to you BAD SKILL

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9. Self-serving bias

• Above average at sport and investing• Excuses versus solutions• Fault for problems during installation

Applications?

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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.

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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

Applications?

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BiasGains and losses

Negative comparisonsOwnership

ExpectationsCosts

Anchoring and adjustmentFREE!

CommitmentsSelf-servingStatus quo

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