Behavioral Economics is the study of human decision-making. According to Julie Thomas, the author of Value Selling, “customers make emotional decisions for logical reasons.” Imagine if you understood the emotional triggers and cognitive biases driving purchasing decisions. How would that improve your customer relationships? This is what Behavioral Economics teaches.
Robotic sales professionals lack empathy and struggle to connect with customers. Without competent emotional intelligence, one cannot build trust.
1) Express Vulnerability
Must Watch: Dr. Brené Brown Ted Talk
2) Avoid Reactance Bias
- What do you think about our solution?
- How would your work be different with our product?
People Judge Reality Based on Reference Points
Your customers constantly compare values based on reference points. For example, customers care more about a $5,000 discount on a $20,000 product versus a $5,000 discount on a $100,000 one. In absolute terms, the savings in both scenarios equals $5,000; however, in relative terms, the savings are 25% and 5% respectively. The remaining sections review the most prevalent customer reference points and how to leverage them.
1) Frame Descriptions
Frames in sales:
- “A product that costs $30,000” versus “A product that increases productivity by 20%”
- “A simple interface” versus “An intuitive interface”
In both examples, the product doesn’t change, only the descriptions. Listen to your customers and frame descriptions based on their interests.
2) The Exclusion vs. Inclusion Method
Studies show customers purchase more scaling-down from a fully-loaded product versus building-up from a consumable base product. In one study at a pizza restaurant, customers were told either to add desirable toppings to a plain pizza or subtract undesirable toppings from a fully-loaded one. Customers in the latter experiment purchased three additional toppings, a significant increase (Levin et al., 2002)!
- The reference point is higher in the scale-down model
- The build-up model highlights costs while the the scale-down model highlights quality
For more on reference points, see how Dan Ariely increased magazine sales by 60%.
3) Anchor Intelligently
Customers tie a product’s value to three anchors (or reference points).
- Status Quo
Let’s break them down:
Your client has expectations for each part of the sales cycle. Even before the first call, she’s imagined what your product does and how it fits into her business. Your mission: find out these expectations. Ask on the discovery call, “what are your expectations for this call?” and “what are your expectations for our solution?”
Humans fear change, crave certainty, and avoid effort. It’s easier for customers to do nothing than deviate from the status quo. Understand your client’s current environment and explain how your solution is better. Ask, “How does our solution compare to your current workflow?”
It doesn’t matter if your product is better objectively; it matters how your customer perceives your product’s value relative to the competition’s. Don’t be afraid to ask, “How does our solution compare to the competition?”
Behavioral Economics empowers salespeople to connect with customers. It’s not a tool to manipulate clients into saying “Yes.” Rather, use it to build emotional intelligence and improve customer experiences.
If you have any questions about applying behavioral economics, please reach out to us on Twitter.
- Brown, B. (2015). Daring greatly: How the courage to be vulnerable transforms the way we live, love, parent, and lead. Penguin.
- Bhattacharjee, A., & Berger, J. (2010). Escaping the crosshairs: Reactance to identity marketing. ACR North American Advances.
- Lewis, Michael. (2016). The Undoing Project: A Friendship That Changed Our Minds (p. 278). [Kindle version]. Retrieved from Amazon.com
- Levin, I. P., & Gaeth, G. J. (1988). How consumers are affected by the framing of attribute information before and after consuming the product. Journal of consumer research, 15(3), 374-378.\
- Levin, I. P., Schreiber, J., Lauriola, M., & Gaeth, G. J. (2002). A tale of two pizzas: Building up from a basic product versus scaling down from a fully-loaded product. Marketing Letters, 13(4), 335-344.
- Park, C. W., Jun, S. Y., & MacInnis, D. J. (2000). Choosing what I want versus rejecting what I do not want: An application of decision framing to product option choice decisions. Journal of Marketing Research, 37(2), 187-202