It might be the deer-in-the-headlights look. Maybe instead you are getting the lean-back or a talk-to-the-hand or a direct “Not now.” Whatever the form, if your prospective buyers are consistently putting off decisions that to you seem like slam-dunks, then it is time to take stock of what is happening in your buyers’ minds. It most likely is something powerful yet simple to understand.
For decades economists assumed that people acted as “rational agents” when making decisions, with a sober evaluation of potential wins and losses. Over time, we have come to understand the ways that real people making real decisions depart from that assumption. We are not objective, dispassionate decision-makers — whether for ourselves or our businesses. That doesn’t mean we are wrong, just human.
Recently, a client began moving to a different business model. Because of this initiative the client’s customers will eventually have to buy their services in a different way. The services are popular and customers have been loyal; repurchase and renewal rates have historically been higher than 90 percent.
The company’s leaders believe strongly that this new model is best for everyone. They defined the value proposition, made an aggressive discount offer to early adopters and proactively called on their customer base. To their surprise and dismay, a sizable proportion of customers have declined the offer to switch or delayed a decision.
Why would otherwise satisfied customers, who are already in the habit of re-upping, now choose not to decide? The answer is in a powerful psychological force called “loss aversion.”
Loss aversion was first demonstrated by Daniel Kahneman (with his research cohort, the late Amos Tversky) beginning in the late 1970s. The only psychologist to win a Nobel Prize in economic science, Kahneman wrote the 2011 business bestseller “Thinking, Fast and Slow.” He showed that two systems are involved in the way we think. System 1 is fast, emotional and intuitive; System 2 is slower and more logical. For many readers and researchers, the eye-opener was how influential System 1 thinking is in many decisions.
Over the years, we have learned about several systematic patterns in “fast thinking.” First impressions have a disproportionate impact on later judgments. Vivid examples matter more than do more abstract and accurate ones. Another major pattern is that losses affect us more than do gains (about twice as much).
Back to the company with the new business model. What’s going on, and are there lessons for your own organization?
As much as people talk about the need for change in the abstract, they generally don’t like making changes themselves — especially if it feels like the change is being forced upon them. In this case, the change customers were presented means a departure from their habits (which were working just fine, judging from the high renewal and repurchase rates).
The company unwittingly unleashed some “fast thinking” on the part of its customers. They believed that this would be any easy, rational choice through which customers would save money. Many customers, however, felt forced into a decision and were anxious about making the wrong one.
When potential buyers are confronted with pros and cons (potential gains and losses) in this way, their “fast thinking” can trigger loss aversion. They pay more attention to the downside. They default to inaction, unwilling to pull the trigger on a decision. That can drive the seller nuts.
In the case of this seller, the new plan is to slow down and change the approach with customers. The seller is offering more time for customers to consider the best path. Rather than lead with an assumed value proposition and pushing for a decision, this company is now engaged in more business-level conversations that uncover assumptions, objections and anxieties.
Help your buyer make the case for change first. It might require more research and patience on your part, but ultimately your ideas will seem less scary and more strategic.
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Jim Karrh of Little Rock is a consultant, coach and professional speaker as well as a consulting principal with DSG. Visit JimKarrh.com, email him at Jim@JimKarrh.com and follow him on Twitter @JimKarrh. |