In this episode, Paul shares four common questions buyers think about when making a decision.
Don’t you wish you could read your buyer’s mind? Selling is not only understanding your buyer’s needs; selling is understanding how the buyer thinks.
What’s the short-term gain? Buyers are going to opt for a short-term gain over a long-term gain, even if the long-term gain is greater.
What am I giving up to experience that gain? People are going to focus more on what they stand to lose versus what they stand to gain. The gain should be twice whatever the buyer sacrifices.
What do I think about my current solution? People place a higher value on the things they already own versus the things they don’t.
Buyers want the solution to be fair. The buyer’s gain has to be fair compared to what they sacrifice.
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How do buyers decide what to do?
(Transcribed from podcast)
Today’s episode, we have one of my favorite questions. This is a question that we have kind of answered in the past, but we’re going to go into a little more depth today. So today’s question comes from Samuel. Samuel actually filled out the question form on the podcast website. So again, just a reminder, if you have a question (I know you do), just visit the website, TheQandASalesPodcast.com. There you can fill out a question and we’re going to turn it into a show just like we’re going to do with Samuel’s question today.
Samuel didn’t really give us much background information on the industry that he’s selling in or what he’s selling. It’s is a pretty general question. The question is: How do buyers decide what to do? I’m going to guess, in this context he wants to know, how do they make buying decisions? What is it that goes through their mind? How do they process information? So, that’s what we’re going to dive deeper into on today’s show. Again, how do buyers decide what to do?
Before we get into that, a quick shout-out to Andrea and her team at The Creative Impostor Studios. Podcasting is such an amazing way to connect with your audience. It’s a great way to connect with your customers. If you’ve ever thought about building a podcast, please reach out to Andrea and her team. We’re going to have a link to her website on our episodes webpage, so check it out. If you have questions, she’ll set up a free consultation with you. Meet with her. Discuss it and get going. I mean, there’s no time like the present to get that podcast started.
Other sponsor, Value-Added Selling. Make sure you pick up your copy. This episode, we’re actually going to talk about some of the psychology of decision making. So, some of the themes we talk about on this episode, they’re actually going to be in the book. If you find it interesting, I guarantee you’re going to love the section of the book we call “The Psychology of Price Shopping.” So pick it up. Again, Value-Added Selling is available wherever you get your books. It’s probably easiest to find it on Amazon. Check it out there.
With that being said, let’s get back to that question: How do buyers decide what to do? Don’t you wish you could just see what’s going on in your buyer’s mind, you know, your customer. I mean, let’s think about it. How many times do you present an amazing solution? A solution that you know is going to have huge impact on the customer’s business, yet they struggle to make the decision, or they make the wrong decision. That can be frustrating for salespeople, especially when you know your solution is the best option for them. So on today’s show, we’re going to talk about a couple of cognitive biases from psychology and how that impacts decision making. But let’s stick with the theme of our show, and let’s think about the questions that buyers ask themselves when they’re making a buying decision. There’s plenty of questions going through their mind.
We’re going to focus on four questions today and those questions are
- What’s the short term gain?
- What am I giving up?
- What do I think about my current solution? and
- Is it fair?
Those four questions… Those are questions that buyers are asking themselves when they’re making a buying decision. Let’s look at the first one. What’s the short term gain? This is critical. We, as humans, we are hardwired to think short term. Instant gratification is not soon enough. I think Meryl Streep might’ve said that. She has a famous quote about instant gratification.
Here’s the reality. We, as humans, we are going to opt for a short-term gain over a longer-term gain, even if that longer-term gain is greater. That’s what we do. We default to that short-term mindset. And so, we have to ask ourselves, “Okay. What is the short-term gain?” When a buyer’s looking at a couple of different options, your solution might be better for them in the long run, but if you don’t have any immediate, short-term gain to go along with it, you’re going to struggle to sell your solution. Let’s think about this. This goes back to maybe our early days as cave men. We’re designed to view things in short term to satisfy our instant needs, our urges. For example, when we’re hungry, that’s motivation for us to go out there and hunt and find something to eat. When we’re tired, that’s motivation for us to sleep. We’re motivated by this stimuli and we respond to it. And so, that equates to decision making today. People are more likely to opt for that short-term gain. We’ve got to be aware of that. And you better be able to explain what a customer stands to gain, not only in the long run, but in the short term as well.
The second question that buyers are asking themselves, “What do I have to give up to achieve that gain, to experience that gain?” We, as humans, we also hate loss. We would rather not lose than win. You’ve probably heard the expression losses loom larger than gains. And the same is true when buyers are making a buying decision. They’ll look at it, the options that they have, and they’ll say, “Okay. This option, it feels like this is the best option. This is what I’m going to gain the most.” Once they make that decision, they’re also thinking, “What do I really have to sacrifice to get this benefit or experience the gain? What do I have to sacrifice?” They’re talking about the money they have to pay, the time that they sacrifice, the energy, the effort that they have to put in, the switch-out costs if they’re switching different solutions. They want to know, “If what I’m really sacrificing here… is it really worth what I’m going to be gaining?” Since losses loom larger than gains, buyers are more likely to focus on what they’re giving up versus what they stand to gain. And so, when you’re presenting your solution, your solution has to deliver a benefit that is 1 ½ to 2 ½ times what they are giving up to get it.
Remember that ratio. This is called the loss aversion ratio. It was created by a guy named Daniel Kahneman and I’ve mentioned it him on the show before. He wrote a great book called Thinking Fast and Slow. And here’s how he came up with that ratio. He’s not talking about sales in particular; he’s really talking about risk. I’m going to read one section from the book. Here’s what he says. And again, this is the book, Thinking Fast and Slow. He said:
“You can measure the extent of your aversion to losses by asking yourself a question, ‘What is the smallest gain that I need to balance an equal chance to lose $100.00?’”
What he’s saying is… Okay. Let’s say you’re in a wagering scenario and you have a 50/ 50 chance of winning or losing, but you have to wager $100. So that means you could potentially lose $100. Well, what is the minimum gain, the minimum acceptable gain that you would select that would counteract that risk of loss? And what he found is that if someone’s going to wager $100 on average, they need to be willing to win $200 to make them tolerate that risk. And when you think about that, it makes sense. If you’re selling your solution and, let’s say, your solution delivers $100 of value to the customer, if we could quantify the dollar value that they get…the impact… Let’s say it helps improve efficiencies which equates to $100 in labor savings. Well, that customer isn’t just going to pay $100 for a solution that will deliver a hundred dollars in savings. It’s a complete wash. No. Instead, what we have to do is, we have to calculate what it is that the buyer’s sacrificing: calculate the time, the money they’re spending, the energy, the effort. Try to put a dollar amount on that and then realize that your solution that you’re selling them, it has to deliver twice that amount in gain.
Let’s use bigger numbers. Let’s say that your solution, it costs the customer $10,000 and that cost is a keyword there; meaning the price, the labor, the switch-out costs. All of that is $10,000. Your solution has to deliver at least $20,000 in value-added impact. So, remember that ratio, when you’re thinking about what the buyer stands to gain, what they’re sacrificing. Whatever they stand to gain has to be twice as much as what they stand to lose or give up.
The third question buyers are asking themselves: What do I think about my current solution? They’re asking themselves, “What I currently have right now… What do I really think about it? How has it been helping my business? Do I really want to give it up?” Closely related to loss aversion, there’s another cognitive bias. It’s called the endowment effect. And basically this means people place a higher value on the things that they own versus the things that they don’t own. You’ve got to remember the buyer that you’re selling to. They already have a current solution, a solution that they own. And the endowment effect suggests that buyer is going to place a higher value on the solution that they already own, that using.
Anyone has experienced this endowment effect, especially if you’ve ever I’ve sold your house. I remember, a couple of years ago, we were meeting with our realtor. We were getting ready to move, and he came over, looked at our house and he asked us what we thought the house was worth. We gave him our number and then he brought us back down to reality and he said, “No. Here’s what the market says your house is actually worth.” And for us, you got to remember, this was our house. This is where we raised our kids. Of course, we thought the house was worth more. So, the endowment effect plays a big role. How you’re going to face this is that your buyer that you’re selling to, they believe the current solution (the competitor that’s already there), that their solution is more valuable because they own it. They’ve been using it for a while. They’re accustomed to it. It has a higher value. So, we have to be aware of that.
Now, the next thing we’ll look at, and this is the fourth question: Is it fair? We, as humans, we are obsessed with fairness. Especially in the Western cultures, the U.S. We are obsessed with fairness. Things have to be fair. And our research shows that this is the number one reason why buyers object on price is because of a perceived lack of equity. They just don’t believe that what they’re getting is worth what they have to sacrifice. They don’t believe that the solution that you’re providing is worth the money, the time, the energy and effort they exchange in having to attain it. And so, we have to believe that the solution is fair, and that is built into us from early ages as a kid. As little kids, we are taught that things have to be fair. You know, people should get fair playing time when they’re on the soccer team. Everyone gets to vote on what we want to have for dinner, because that way it’s fair.
We’re obsessed with fairness, and our customers must believe our solution is fair. So here’s one tip. Actually, when you’re presenting your value-added solution to a customer, you can’t just present what makes your solution unique, what makes it different, how it’s going to impact the customer. You also have to stress how your solution is fair. It’s fair and equitable. And once the customer believes that it’s fair and equitable, they’re more willing to pay your price.
One example of, of demonstrating fairness. The restaurant industry is filled with great examples. I remember once going to a restaurant. It was a nice restaurant, and the menu prices reflected that it was a nice restaurant. They were known for their seafood. This one restaurant, what they will do to help justify the pricing, to show that it’s equitable, they will post the actual shipping information of that day’s catch. So this restaurant, you’ve got to remember, they’re shipping fresh fish in every single day. They post the bill of lading or the receipts right up front so everyone can see it. And it’s a way for them to show, “We flew this fresh fish in today.” You can see the dates. You can see the time of arrival, all that good stuff. And the reason they do that, again, is to demonstrate fairness. Because, any reasonable person will look at that and say, “No wonder that the fish might be a little more expensive. There’s a cost associated with shipping that fish in fresh every single day.”
Again, Samuel, your question—it’s a great question: How do buyers decide what to do? Remember, they’re asking themselves four questions at least. But these four we’re going to focus on today.
Number one: What’s the short term game?
Number two: What am I giving up to get the solution?
Number three: What do I think about my current solution?
And, number four: Is it really fair? Do they believe that it’s an equitable exchange?
Make it a big day.