Oct 18, 2019 • Podcast

Why won’t customers change?

Have you ever wondered why customers or prospects won’t change?

You might have a better solution, but the decision maker is still reluctant. In this episode, Paul discusses some of the psychological forces that impact your customer’s or prospect’s decision making process.

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Why won’t customers change?

(Transcribed from podcast)

Today, we have a very interesting question. This is a question that salespeople ask us all the time: “Why can I not get my customer or prospect to change?” “Why won’t they try this new idea?” “Why will they continue to buy from that supplier who’s doing a lousy job of taking care of them?”

We’re going to answer that question today and take a look at some of the deeper psychology behind that. There are three things we’re going to focus on: the Status Quo Bias, Loss Aversion, and the Endowment Effect.

Let’s talk about loss aversion and how it relates to change. Loss Aversion basically means that losses loom larger than gains. One way to look at this is that your customer or prospect is looking at what they could potentially gain by making a change, and they compare that to what they have to give up to attain that. Since losses loom larger than gains, it means they focus more on what they have to give up versus what they actually gain. The loss plays a bigger role in their decision. Here’s something to think about… Daniel Kahneman, a Nobel Prize winner for Behavioral Economics, has some fascinating research and wrote a book called Thinking Fast and Slow. I highly recommend it. It’s a great book. Just to warn you, it’s like War-and-Peace thick, so it’s a big book. In his book, he has a lot of research on Loss Aversion. He came up with a ratio of 1.5 to 2.5 times. This ratio means that when people are making decisions and they could potentially gain something, that gain needs to be 1.5 to 2.5 times what they have to give up in order to attain it. I’m not going to bore you with all the research, but I’ll give you a basic understanding on how he came up with this ratio. He would do an experiment, talking to several different people, and he would ask them, “If you could potentially lose ten dollars in a wager, how much would you have to have the opportunity to gain to make it worth it?” People would give a number usually more than ten dollars: fifteen dollars, twenty dollars, twenty-five dollars. After he asked enough people that same question in conducting that experiment, that’s where he got that ratio: 1.5 to 2.5 times what they have to give up. Use that as a benchmark. If you’re trying to displace a supplier of one of your prospects, you’ve got to prove that the value you deliver, or the cost saving, or anything else, is 1.5 to 2.5 times what they’re currently getting. If their current supplier is saving them a hundred labor hours per year with their value-added services, you’ve got to be able to show how you can save them a hundred-and-fifty hours for them to consider it. Just as an example, think about that. Think of the 1.5 to 2.5 times as a guideline, it’s not gospel by any means. That’s what we mean with Loss Aversion. That’s why it’s hard for them to change. People focus more on what they have to give up versus what they gain anytime a change takes place.

The second thing we need to look at is the Status Quo Bias. People like to stick with what is familiar to them. They like to stick with what they know, with what they trust, and oftentimes, they’re not willing to change, even if there’s a cheaper price out there to be had. In fact, there’s a study that UCLA had published where students went around to different utility customers in California. They said to each customer, “We have two options. You can either choose a more reliable energy grid (there are going to be fewer blackouts, things like that, but it’s going to be a little more expensive) or, you can have a less reliable energy grid. You might experience some blackouts, but this option is less expensive.” For half of them, they said, “You currently have the less expensive system.” The other half, they said, “You currently have the more expensive, more reliable system.” They asked each group, “Which would you like stick with?” More times than not, people said, “Let’s stick with what we have,” knowing there’s a cheaper price out there. People like to stick with what they know. This is how this relates to decision making. When you’re talking to customers, it’s important that you highlight what is familiar to them already. This is especially useful when you’re selling a new concept or a new idea. So, if you’re talking to a prospect or a customer and you’re trying to displace their other provider, you want to find a concept or an idea that you’re selling that is familiar to them already. We call that finding a parallel or using an analogy. One example might be saying to the customer, “I understand that you’re already sold on this idea of reducing total cost of ownership. Look at all the things that you’re already doing to reduce that total cost, and reduce labor cost. What we’re offering you is just an extension of that. Here are all the ways that we can now reduce that cost. Here are all the ways that we can enhance productivity and make you more profit.” You’re showing them how your idea runs parallel to what they’re currently doing. That conceptual overlap is going to help them buy in to your idea.

The third thing we’re going to talk about today is the Endowment Effect. The Endowment Effect basically means that people place higher value on the things they own, the things they know already. This is another reason why people don’t change. Especially if you’re trying to sell a customer on a new idea that’s going to displace an old way of doing things; especially if that old way of doing things was their original idea. They’re going to place more value on that. Our goal is to displace that. You’ve experienced the Endowment Effect at a practical level. If anyone’s ever tried to sell their home, for example, you meet with the realtor and tell them, “Here is what I think my house is worth.” But then they tell you what it’s actually worth. We place a higher value on it because we own it. That’s where our memories are, that’s where our kids grew up. But, in reality, here’s what it’s really worth. What this means for decision making is that people place a higher value on what they own, and that includes their own ideas. And so, when we’re trying to persuade them, if we can somehow convince them that our idea—this concept, this solution—is really their idea, that’s going to help them adopt the solution. I’ll give you an example. Several years ago, when my dad, Tom, was still in the training business, we were having lunch—and this is right when I joined him—and, he said, “What are some ideas you have on how we can improve around here—maybe, where we should invest? How should we get better?” That was his basic question. And I remember saying to him, “You know what, Dad? I think it’s time to revamp the company website. It looks a little dated. You know, it’s the first impression people have of our company. Maybe it’s time to work on that?” He paused for a moment, just looked back and said, “I don’t think so. We’re just not there. We don’t need to do that yet.” We kind of dropped it. Well, it wasn’t three weeks later, we’re having lunch again, and my dad looked at me and he said, “Paul, I’ve got a great idea. We’re going to completely overhaul our company’s website. Here’s what we’re going to do . . .” And I said, “Dad, I gave you this idea like three weeks ago!” And he said, “Oh, no. No,” and he dismissed it. “You were talking about something else.” The reality is, my idea became his idea, and now that it was his idea, he was ready to move forward with it.

Yes, it is a challenge when customers don’t want to change. This podcast, hopefully, gave you a couple of ideas on how you can help inspire change.

Just to recap, remember, with Loss Aversion, whatever they give up is going to loom larger than what they gain, so, you’ve got to show 1.5 to 2.5 times of gain compared to what they have to give up to attain it.

When we talk about the Status Quo Bias, be able to explain how your ideas and concepts are familiar to them already. Draw a parallel to another area of their business.

And then, the final thing we talked about is the Endowment Effect. People place a higher value on the ideas that are their own, versus your ideas. Somehow, try to convince and plant your idea in that customer’s mind.

Make it a big day.

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