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Selling to Biased Customers
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Transcript of 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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THANKSFeedback please!