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Risk, Reward and Following the Crowd

A little over a month ago I wrote a post I titled Everyone’s Doing It: The Impact of Consensus. It provoked quite a reaction, especially on LinkedIn. Here’s a small sample of comments from readers:

“It’s called groupthink. Look it up. Don’t hide in the flock of sheep. Emerge the solitary extrovert with an independent brain!!”

“Consensus is not a reality- it’s an abstract concept. Dissent is always essential.”

“Lemmings…”

“Consensus is an effective (cowardly?) way to hide from having to face the fact that no innovation took place because of consensus, but in spite of it.”

If I had to characterize most of the response it was resistance to the idea of consensus, following the lead of others. People don’t like to think of themselves as followers but we all follow more than we realize. It’s why we generally buy Amazon products that are rated four and five stars and avoid products that primarily get one or two star ratings. It’s why we tend to go to crowded restaurants instead of empty ones. And seldom do we go to movies that get poor reviews. (An exception to that might be movies that “critics” pan because the views of “critics” are often contrary to the average moviegoer.)

The subject of consensus (a.k.a. social proof) came back to awareness as I watched Ray Dalio’s Ted Talk “How to Build a Company Where the Best Ideas Win.” Dalio is a well-known hedge fund manager and what caught my attention were his comments about risk, reward and following the crowd.

In a nutshell, Dalio told the audience when it comes to investing following the crowd, the market, won’t make you rich. Why is that the case? It’s like riding in a bike race and staying in the pack. You can do okay but you won’t win being in the pack the whole race. The people who are willing to take a risk and break from the pack have a chance to win but there are risks that could lead to big time failure too. And so it is when it comes to investing. Breaking from the market and conventional wisdom might help you make a lot of money but it could also result in big losses.

Why don’t more people break from the pack? Because human beings are generally risk averse. Daniel Kahneman won the Nobel Prize in Economics for his work on loss aversion. Kahneman and his late partner Amos Tversky statistically proves humans feel the pain of loss anywhere from 2.0-2.5 more than the joy of gaining the very same thing. Consider for a moment the safety of the crowd combined with the aversion to loss most people feel and you see why the so many generally play it safe and go along with the crowd.

Are there exceptions to the rule? Absolutely! I’m sure as you read this you can recall times when you went against the grain. We generally do that when we’re convinced we’re right, regardless of what everyone might say or do. That same sense of certainty is what leads some people to go against the crowd and gamble on their dream job, go for broke in the stock market, or passionately pursue their dreams. That’s how some people make it big. But don’t be deceived, far more people don’t land their dream job or become wildly rich because it’s hard and the odds are against them. After all, if all it took was the courage to take the first step or determination to do the work then everyone would be going for it and everyone would be rich. But that’s not the case because the greater the payoff the greater the risk and as we’ve already seen, most people are loss averse.

This post isn’t intended to discourage you from pursuing great things. On the contrary, it’s intended to open your eyes about what may be holding you back. Hopefully after reading this some readers will realize why they’ve not already taken that first step and decide to go for it. Even if you fail, there may be great things in store for you. I’ll end with the famous quote from Teddy Roosevelt on this subject:

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

If You Haven’t Seen It, It’s New to You

Some of you reading this might remember the NBC commercial with the tagline, “If you haven’t seen it, it’s new to you.” Almost 20 years ago that commercial had one goal – entice viewers to watch summer reruns. Catching a tv show you missed by watching summer reruns might be a foreign concept for many people today because virtually all television shows and movies can be viewed on demand. But 20 years ago it was your only hope of catching the shows you missed.

The NBC commercial came to mind as I listened to Roger Dooley’s Brainfluence Podcast. During episode #138, The Customer Loyalty Loop, Roger was interviewing Noah Fleming and Noah referred to Schlitz beer back in 1919.

Noah shared the story of a marketing consultant, Claude Hopkins, who was walking the floor of a Schlitz plant and saw some really interesting things happening. When he asked why Schlitz wasn’t talking about those things in their advertising their response was basically because all beer makers did those things and they were nothing special. Claude’s response was, “Yeah, but nobody’s talking about them,” so Schlitz built a marketing campaign around those cool things.

Sometimes marketing is no more than sharing what you do in a compelling way. A more recent example would be Liberty Mutual’s commercials that highlight how some auto insurance doesn’t give you enough reimbursement to replace your car when it’s totaled. They’re correct and the commercials touch a nerve with the buying public.

Liberty tells you their insurance will replace your car. But here’s the catch – you have to pay extra for that coverage and almost every insurance company offers the same coverage for a price. Kudos to Liberty though because they’ve talked about something all of their competitors do but in a compelling way that makes Liberty stand out. No doubt many more people have contacted agents who represent Liberty Mutual for a quote because of those commercials.

So what’s the point? Whether it’s NBC summer reruns, Schlitz beer or Liberty Mutual’s new car replacement, what each company was touting may not be new but those offerings are new to you if you’ve not encountered them before.

When something is viewed as new, novel or unavailable elsewhere that’s an application of the principle of scarcity. This psychological concept tells us people value things more when they’re rare and it compels us to act in ways we wouldn’t normally. Once people realize they can get something like new car replacement from any insurance company the Liberty advantage will disappear because it will no longer be viewed the same way.

When you’re marketing your products or services look for ways to share the novelty of what you’re offering. That novelty might not be one thing, it might be a combination of things, but either way you stand a much better chance of gaining people’s attention and making the sale.

The Politics of Fear: They’re Trying to Scarcity the Hell Out of You

You’ve probably heard people say something like this many times in recently, “I wish candidates would just tell us what they stand for and their plans instead of bashing other candidates.” Those sentiments have probably never been as strong as they are right now with Donald Trump and Hillary Clinton going after each other like fighting pit bulls.

Candidates are engaging in is what’s known as “The Politics of Fear.” Many accused Donald Trump of that immediately after his acceptance speech at the Republican National Convention. Some pundits called the speech dark and foreboding. Others said it distorted reality as he invoked images of terrorist attacks and police killings. Trump painted a bleak picture and projected himself as the only answer.

But don’t be fooled because Hillary is engaged in the politics of fear, too. She wants her supporters and undecided voters to be scared as hell of a Trump presidency. Her fear messaging wants you to believe he’s a tyrant and will rule like a dictator. One MSNBC commentator went so far to say, diplomatically, Trump would be like a mushroom cloud (i.e., nuclear) when it comes to international relations. Scary!

If we’re all so sick of the negativity, candidate bashing and fear mongering then why do politicians continue to do it? Because fear moves people more than almost anything else.

The principle of scarcity tells us people are moved to action far more by the fear of loss than they are by the thought of gain. Daniel Kahneman, a Noble Prize winner in the field of economics, studied this phenomenon with the late Amos Tversky. Together they proved people are motivated 2.0-2.5 times more to take action by the thought of losing something as opposed to gaining the same thing. Think of it this way; most people will work a lot harder to not lose $100 they already have versus how hard they’ll work to earn an extra $100.

For as long has humans have been around we have instinctively known this and it has not escaped the notice of politicians either. Perhaps the most famous use of fear mongering was President Lyndon Johnson’s television ad when he ran against Senator Barry Goldwater in 1964. The ad shows a little girl in a field with flowers then suddenly there was a nuclear explosion. The ad ended with a deep voice saying, “Vote for President Johnson on November 3. The stakes are too high for you to stay home.” This particular message may not resonate as much today but in the early 1960s there was a real fear of a nuclear confrontation with Russia. The message was clear; nuclear war was a possibility if you voted for Goldwater. Click here to see the iconic commercial.

As the rhetoric ramps up on the march to the November election, don’t expect either candidate to go positive. Governor John Kasich did his best to stay positive in the Republican primaries and it got him nowhere.

As one slings mud, the other will respond. If a candidate doesn’t respond to a negative attack they are seen as weak. Just ask John Kerry about the “swift boat” allegations in 2004.

As much as we say we don’t like it, we will get nothing but doom and gloom combined with personal attacks like we’ve never seen before. But take heart, in all likelihood this will be dull compared to what we’ll experience in 2020 and beyond.

Persuasive Marketing the Old Fashioned Way

People often ask me if Robert Cialdini’s principles of influence are as effective today as they were when he first wrote about them 30 years ago. I emphatically reply, “Yes!”

The methods of communication may be changing – email instead of letters, text or instant messaging instead of phone calls, online advertising instead of television commercials, to name a few – but humans have not evolved nearly as much in the last century.

The human brain has not changed as rapidly as technology so you can rest assured the principles of influence work every bit as well today as in the past IF you understand them and employ them correctly.

Even though the preferred methods of communication may be changing, things like television ads, phone calls and letters are not going away any time soon so the smart marketer will be looking to use the principles with traditional media during this transition.

A friend recently gave me a marketing letter he received from AT&T because he knew I’d be interested in it from a persuasion perspective. I’d like to point out several places where AT&T is effectively using influence.

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At the top the letter had my friend’s name – John – which personalized the communication. Dale Carnegie said the sweetest sound to anyone is the sound of their own name. Our name catches our attention and that’s the marketer’s opportunity to keep you reading.

In the opening paragraph it reads, “Per your request…” Closely read the letter and you’ll realize it isn’t directed to the person who received the letter. It’s written to David Banks of AT&T’s Consumer Marketing Department. Like most people reading something like this I didn’t pay close attention so it took me a couple of reads to figure that out.

If the person reading the letter assumes it’s directed at them then “Per your request” taps into consistency. This principle tells us people feel psychological pressure to be consistent in what they say and do. If you requested something it’s much more likely you’ll take time to read the rest of the letter and consider the offer.

The next paragraph mentions a number of free offers. People love free to the point of irrationality. Dan Ariely wrote about our obsession with free in Predictably Irrational. One example Ariely frequently cites is how often people purchase additional items on Amazon just to get the free shipping. In the end they spend much more money!

Being offered the free items up front is an attempt to engage reciprocity although it doesn’t actually do it in this letter because unless you take AT&T up on the offer you’ve not received anything. It’s only when you get something that you feel obligated to do something in return. Nonetheless, a potential free offer keeps the reader interested.

The fourth paragraph reads, “We don’t want John to miss out on this great deal.” This is the principle of scarcity. People hate the thought of losing out, especially on great deals, so it motivates behavior that wouldn’t otherwise happen.

At the bottom of the page the “Reviewed” stamp adds an element of authority. As noted above, the letter is to David Banks from AT&T’s Consumer Marketing Department and the stamp shows he reviewed and approved the offer.

Last but not least is the “hand written” yellow sticky note affixed to the top of the letter. In a blog post I called 700,000 Great Reasons to Use Sticky Notes, I went into detail about how using these little post it notes can dramatically increase response rates. This sticky note looks hand written and that engages reciprocity because the perception is that someone took a little more time to put the sticky note on the letter and more time to actually write the note.

Now you may be thinking this would never work on you and you might be correct. However, it works on enough people that AT&T and many other smart companies incorporate this type of psychology into their communications. If it didn’t work they’d quickly abandon approaches like this in search of others that do work.

Using the principles of influence won’t make a bad product good or a lousy offer better. But, in a day and age where we’re assaulted thousands of times a day with marketing messages, small tweaks to communications might be the things that grab attention and keep people reading. And that’s the goal of marketing because in the absence of that, nobody would take AT&T up on an offer like the one you just read.

The Southwest Airlines Love Affair is over and it’s Completely Irrational

Yes, you read that correctly; my 12 year love affair with Southwest Airlines is over and truthfully, it’s irrational on my part and Southwest’s too. Perhaps you could say we have irreconcilable differences.

Dan Ariely, author of Predictably Irrational and The Upside of Irrationality, uses studies from behavioral economists to prove we humans are not the rational beings we like to think we are…at least most of the time. One such study that highlights our irrationality is the ultimatum game.

In the ultimatum game, person A is given $10 and can choose to give any amount to a playing partner, person B, and keep the rest for himself or herself. How much would you give person B? Is $1 enough? After all, that’s better than nothing. Would you give $4 or $5? That seems like something a fair-minded individual would do. How about $6 or $7? It’s a rare person who would give away more than they would keep.

There’s a catch to the game; person B can reject the whole deal – meaning neither side gets to keep any of the money – if they don’t like what’s being offered.

Things change rather dramatically under conditions of perceived fairness. Person A almost always offers $4 or $5 in hopes of being viewed as fair because that usually leads to agreement. When agreement is reached everybody wins because both parties leave better off financially than they were before the game started.

If you think about it rationally though, if you were offered $1 that’s better than nothing and yet the vast majority of people don’t view it that way. If something “fair” isn’t offered, person B will almost always reject it…even to their own financial detriment.

Consider that for a moment – people willingly subject themselves to “injury” (take no money instead of a few free bucks) just to punish the other person when they feel they’re being treated unfairly. You need look no further than divorce court to see this play out in real life!

How does this impact Southwest and me? I fly a good bit but recently learned I had lost my A-List status with Southwest. When I called to find out why, I was told I needed 25 flights in 2015 but only had…24. I thought it reasonable to ask for an exception given my loyalty, increased flights in recent years, and because I had a December business trip I needed to reschedule till this spring. I’d be hard pressed to think of a handful of times I’ve flown other airlines the past five years and when I have it’s because I traveled with colleagues who had already booked flights.

My request was rejected three times at various levels over the phone and one last time after writing a letter. The reason Southwest wouldn’t budge was “to maintain the integrity of the [frequent flier] program.” I was shocked given the level of customer service I’d experienced with Southwest and my loyalty over the past dozen years. I would have expected that response from many other companies but not my beloved Southwest!

Being a persistent guy I finally emailed CEO Gary Kelly (you’ll never hear “Yes” if don’t ask, right?). At each level Southwest dug their heels and now I have, too, because I’ve made the choice to take at least a couple of flights on other airlines this year. It’s irrational because Southwest flights are almost always on time, their flight attendants are great, and the more I fly the better my chances at getting my coveted A-List status back. But like the person who feels they were treated unfairly in the ultimatum game, I don’t care!

For Southwest’s part, they could have made a loyal customer even more loyal by saying, “Mr. Ahearn, seldom do we make an exception like this but we can see you’re a loyal customer and we appreciate your business so we’ll do it this one time. Will you still be flying with us every chance you get?” Boom! I would have been happy and would have told them I’d absolutely fly Southwest at every chance. And you know what, I would have, because they would have used the principles of scarcity, reciprocity, and consistency on me at the same time. Making such an exception would have cost them almost nothing other than letting me to accrue frequent flier miles 25% faster. That benefit equates to me getting a free ticket 25% sooner which might cost Southwest about $100 assuming a I earn a $400 round trip ticket a year.

So Southwest has made an irrational choice, too, because when I choose to fly other airlines, Southwest will lose more revenue than they would have “given up” if they’d simply accommodated my request.

Much like the ultimatum game, there comes a point when everyone loses despite their best effort to persuade the other side. In this instance I lose and Southwest loses too. But, we’re all human after all so I’m sure it’s not the last time Southwest will stick to their guns nor will it be my last time to stick to mine.

8 Simple Phrases to Become a More Persuasive Salesperson

I think it’s safe to say the easier something is to remember the more likely you are to act on it. State Auto’s Chief Sales Officer Clyde Fitch drove home this truth during his tenure with the company. Clyde had many memorable sayings we affectionately called “Clyde-isms.” He used these simple messages to drive home various points. Here are just a few of Clyde’s well-known sayings:

“Self-interest isn’t the only horse in the race but it’s the one to bet on.” A great picture of the reality that most people will do what’s in their best interest most of the time.

“If you only have bananas, sell bananas.” Don’t complain about what you don’t have or bemoan what your competitor has. Instead, make the best of what you’ve got because complaining gets you nowhere.

“Creativity is fine. Plagiarism is fast.” Learn from others by taking what they do well and making it your own. Sometimes it’s not about originality, it’s about having the tool to get the job done quickly.

I’ve learned a lot from Clyde and as I reflect on his “Clyde-isms,” I recall influence phrases that can serve the same purpose for you. Below are eight that will help you be a more persuasive salesperson if you commit them to memory.

“People live up to what they write down.” It’s scientifically proven people are more likely to do what you want if you can get them to put pen to paper. The act of writing and the visual reminder of what was written compel people to follow through more than those who don’t engage in this simple act. This is the principle of consistency.

“Less is more.” Hitting people over the head with too many facts, features, benefits, etc., works against you. One study showed this when people were asked to list reasons they would buy a particular car. Contrary to what most people would guess, those who listed fewer reasons felt more compelled to buy the car! It’s easy to come up with three reasons (probably the best ones come most easily) but if you struggle to list 10 reasons you might convince yourself the car isn’t the right one for you after all. This is the principle of scarcity.

“In wins!” This phrase is short for, “If you retreat in the moment you win. If you retreat from the moment you lose.” No matter how good a salesperson you are people will say no to you. However, if you come in with a second proposal immediately you’re very likely to hear yes because you’re seen as a reasonable, somewhat giving person. This is an application of the principle of reciprocity.

“Compared to what?” In sales you hear “Your price is too high” all the time. Something can only be high or low, big or small, inexpensive or expensive compared to something else. You need to know what that something else is because all too often it’s not a valid comparison. Yes, this Cadillac is expensive…compared to the Volkswagen you currently own…and there are lots of reasons for the difference in price. This is the contrast phenomenon.

“Keeping up with the Joneses.” Despite the fact that we’re all individuals and want to be recognized as such, people are social creatures. We want to know what others are doing; especially those who are most like us, because that’s an indicator we should be moving with the crowd. If you’re a salesperson touting what other customers (just like the one you’re talking to) have done makes getting the sale much easier. You may have heard this called peer pressure, social proof or the principle of consensus.

“People like to do business with people they like.” I’ve heard people say, “My job isn’t to be liked, it’s to get things done.” You may not be paid to be liked but you’ll get a lot more accomplished if people like you. So why not make friends of coworkers, vendors, clients and others so you can accomplish more (that’s what you’re paid to do!)? Oh yea, and one other benefit – you’ll enjoy what you do even more than you currently do. This is the liking principle.

“No pain, no gain!” This too is short for a longer phrase, “People are more motivated by what they stand to lose versus what they might gain.” Studies from Nobel Prize winner Daniel Kahneman and his late research partner Amos Tversky proved that people generally feel the pain of loss anywhere from 2.0-2.5 times more than the joy of gaining the same thing. Point out the downside of not going with your proposal and people will me more motivated to take it. This is the principle of scarcity.

“Stop telling and start asking.” Nobody wants to be told what to do but beyond being polite there’s another reason to ask instead of tell. Once someone tells you (verbally or written) they’ll do something, research shows they’re much more likely to do so as opposed to those who are told. Ask people questions to get them to verbalize what they want and your job as a salesperson gets a whole lot easier. That’s because asking triggers the principle of consistency.

So there you have it, eight short phrases I encourage you to commit to memory. Do so and you’ll become a more persuasive person as you recall them and act on them.

Why is Scarcity such a Motivator?

We’ve just come through the holiday season and retail sales were up about 8% from a year ago according to MasterCard. It’s probably not a stretch for me to assume that all of you reading this took part in holiday shopping if for no other reason than to take advantage of the great sales that were so prevalent.

There is something about a sale that grabs our attention and there are two primary reasons we love to take advantage of the opportunities retailers present. Contrary to what you might think, it’s more than just saving a little cash.

First, we hate the thought of losing. That’s the principle of scarcity at work on us. We’ve become so conditioned by sales that we know when we don’t buy something on sale we’ve most likely overpaid; i.e., lost money. Amos Tversky and Daniel Kahneman’s research shows people feel the pain of loss more than they do the joy of gain. In fact, most people experience the pain of loss anywhere from 2.0-2.5 times more than the joy of gaining the same thing. In other words, as much as we like saving $100 we hate the thought of losing $100 much more. Again, not taking advantage of a sale equates to losing.

However, as much as we like a sale we do know there are plenty throughout the year so what’s a retailer to do to get us to take action immediately? When you throw in some kind of limit our desire for the sale item is greatly heightened. Think about it; if there were not a time limit (“Sale ends Sunday”) or limited supplies (“While supplies last”) we wouldn’t be as quick to take advantage of the bargains. After all, it’s also quite natural for many people to procrastinate.

But why is scarcity such a motivator?
According to Robert Cialdini’s best selling book Influence Science and Practice, it has to do with how we’re wired, i.e., our evolution as a species.

“One prominent theory accounts for the primacy of loss over gain in evolutionary terms. If one has enough to survive, an increase in resources will be helpful but a decrease in those same resources could be fatal. Consequently, it would be adaptive to be especially sensitive to the possibility of loss.” (Haselton & Nettle, 2006)

While some things may be changing rapidly (human knowledge is doubling every 12 months), human beings evolve slowly, very slowly. Most people probably don’t live in life and death situations like humans did thousands of years ago but our brain wiring is essentially the same. So that wiring that was designed to help us survive still exists today, only it’s tapped into in many ways that are not related to survival.

How does this impact you? In two primary ways:

If you’re a consumer make sure you don’t reflexively act on things. While the sale may look too good to pass up do you really think it’s the best sale there has ever been? Do you think it will never come back around again? The answer is most likely no in both cases. So take your time on major purchases and don’t be so quick to jump just because you see something is 30% or 40% off. It’s very likely there will be President’s Day, Memorial Weekend, Fourth of July, and Labor Day sales that are every bit as good if you can be patient.

When you’re a persuader look for legitimate scarcity in your product, service or offer. There may not be one thing that is totally unique but perhaps there is some combination of features or benefits that can’t be gotten elsewhere. Tout the combination to alert people to the uniqueness. And if there happens to be a limit on time or quantity make sure you mention it because it will increase the odds that someone will say yes to you.

In order to be a master when it comes to persuasion always look for the principles of influence that are naturally available. Then use those principles of honesty highlight what you’re talking about. Doing so will significantly increase your odds of getting to yes.

Don’t be so Quick to Restock that Shelf

My daughter Abigail’s good friend, Maxie, used to work at a bakery in our hometown of Westerville.  One Saturday morning Abigail and I stopped by to say hello and get a sugary treat after having coffee. I noticed Maxie was busy replacing donuts and making sure the pastry trays were completely full. Unfortunately, it was a bad persuasion move on her part.

I asked Maxie why she was so quick to restock the trays after a few donuts or pastries were purchased. She said the bakery owner liked the trays to be full and he believed they looked better that way. I told her that approach is actually working against the bakery making more sales. Let me explain.

Two principles of influence were potentially at work in the bakery if the situation was handled correctly. The first was consensus – we look to others to see how we should behave in certain situations. The second principle was scarcity – we value things more when they’re rare or diminishing.

When people walk into a bakery and see a tray with very few donuts left, consensus kicks in as the first thought is – those must be good donuts because everyone seems to be buying them. Next comes scarcity – with so few donuts left, if I don’t get one soon I might not be able to get one. Both principles become a huge draw do make a purchase!

I’m pretty confident the owner of that bakery has many things for employees to do other than constantly restocking the shelves. One big thing would be having them engage customers and sharing what items are “selling like hotcakes.”

Have you ever been to a store where you obviously needed help but an employee or employees seem more concerned with stocking the shelves? That’s frustrating. Some of that may be due to their hesitancy to interact with people but I’m sure some of the pressure comes from a manager who feels fully stocked shelves is a high priority for the store. Not smart if you want to sell more goods.

Think about where you work. Are there things you have that people actually see? If so, don’t be so quick to “restock the shelves” because doing so reduces the impact of consensus and scarcity. Rather, manage the process so you convey what other people are buying and get your customer to “act now” so they don’t lose an opportunity. If you’re worried about employees standing around, teach them how positively engage customers in such a way that customers enjoy the buying experience and keep coming back.

Why Thankfulness Matters

This week people across America will be celebrating Thanksgiving. While this holiday has its origins going back to the 1600s with the Pilgrims it wasn’t until Abraham Lincoln that we formally acknowledged the last Thursday in November as the day of celebration. Franklin D. Roosevelt altered that in 1939 when there were five Thursdays in November. FDR declared the fourth Thursday to be the official day and the Senate ratified his decision in 1942, officially making the fourth Thursday Thanksgiving in the United States.

The truth is we should be thankful every day and multiple times each day because there’s so much to be grateful for. If

Viktor Frankl could find reason to give thanks while held prisoner in Nazi concentration camps then we can all find reasons to be thankful each day. Unfortunately it’s human nature to take things for granted so it’s not until something is missing that we appreciate it more. That’s the principle of scarcity in action.

Speaking of being thankful, here’s an example of the wrong way to go about it. Many years ago a colleague needed help with something. What was asked not only required my time but the time of several others as well. It forced us to put things on hold for other people but nonetheless we “stopped the presses” and accommodated the request. This person got what they needed and went about their business the next day. What stood out to me was this – never did they thank us in person, by phone, or in writing. I remember thinking, “I don’t work for thanks. I get paid well to do my job,” but I also knew in my heart I wouldn’t extend myself for that person again and I certainly wouldn’t ask others to do so.

I don’t think I’m different than the average person in this regard. When I go out of my way to help someone – even when paid – if I don’t get some acknowledgment of appreciation I know I won’t try as hard the next time. Contrast that with people who offer genuine thanks and appreciation. I bet most of you would go above and beyond for such people.

Giving thanks is a form of reciprocity. This principle of influence tells us people feel obligated to give back to those who first give to them. According to the French social psychologist Marcel Mauss, every human society teaches its people the way of reciprocity. We see this as we raise our children because one of the first things we teach them to say is, “Thank you,” when someone has done something for them.

Because we’re all brought up in the way of reciprocity most people are somewhat offended when the person they helped cannot take a moment to say thanks. Beyond offense, people are less willing to help thankless people as time goes by. It’s a natural human response.

Here’s why thankfulness matters. When you do express sincere appreciation people are more likely to help you – and others – in the future. Think about it; you help someone, they express gratitude, and you feel good about the action you took. You’re naturally more likely to repeat behaviors in the future that made you feel good about yourself. And the person you helped is more likely to help others too. That’s called “paying it forward.”

As we approach the day that commemorates giving thanks pause to reflect and see if you’re someone who regularly gives thanks when someone does something for you. If you don’t, or don’t as regularly as you should, make a commitment to start. I think you’ll be amazed at how people respond to you and you’ll be thankful you changed your ways.

 

V = WIG/P … What?

Don’t worry; this post isn’t about algebra or calculus. This week we’re going to look into the value proposition and how salespeople can use the principles of influence to make sure their product or service offering shines.

First, let me say my introduction to the value proposition came nearly 20 years ago when John Petrucci joined State Auto. I learned more about sales from John in his first year with the company than I had in my previous 10 years in the industry. One concept he shared with me, and others throughout the company, was the following formula for the value proposition:

V = WIG/P

Value equals What I Get divided by Price

Let me illustrate. Let’s say currently you can buy 12 widgets for $6. That means the value of each widget is 2. At some point in the future, if you can get 18 widgets for $6 then the value of each widget is 3. Or, maybe you can get still get 12 widgets but now they’re only $3, which makes the value of each widget 4. In each case the value of the widget has gone up which is a better deal for you!

Conversely, if you can only get 12 widgets but the price has gone up to $8, then the value of each widget is only 1.50. Perhaps the price stayed at $6 but now you can only get six widgets. The value you get from widgets has dropped to 1. In both cases, not as good a deal as it once was.

Bottom line; if you can get more and pay the same OR if you get the same but pay less, you’ve received more value. On the flip side, if you get the same and pay more OR get less but pay the same as you always have, then you’ve received less value.

Oh if life were only so easy as a formula! If it were, we would just plug in the numbers and always make the best choice. But here’s the problem – rarely do things play out in real life like they do in the classroom or on paper. Most of the time what we’re offering, be it a product or service, has many components that become hard to value in a formula. Here’s an example from the insurance industry. Many people assume one automobile insurance policy is like another. To some degree that’s true but here are factors that may account for much of the price difference:

  • Coverages – Not all policies have the same coverages and not all have the same coverage limits. More coverage or higher limits means paying more.
  • Bells and whistles – Many policies have extra coverages that are intended to make the policy more valuable. While these may be free (you can’t remove them and save money) they add value to the policy.
  • Claims – Not all companies handle claims the same. Those with better claims service usually charge more because they have more and better staff.

As you can see, it becomes hard to measure value when there are so many factors involved. However, if you’re in sales you’d better know how your product or service is different from your competitors. Your offering may not appeal to everyone but you may have a niche market you go after. That usually makes highlighting value easier.

So how you do use some of the principles of influence to highlight value? Here are three easy-to-incorporate examples.

Authority – People look to experts for guidance when they’re not sure what to do. Can you point to unbiased sources that show the superiority of your product or service in certain areas? Can you fall back on your expertise (years in the business, training, breadth of experience) to make a potential customer feel more comfortable?

Consensus – Humans are essentially pack animals. The vast majority of people feel better knowing what others have said about a product. Can you incorporate information about what the masses think about your product? Is there an opportunity to narrow the focus to people just like the person you’re trying to sell to?

Scarcity – People are much more motivated by what they may lose versus what they might gain. Talking about saving $100 (if your product is less expensive) will not be as effective as telling the prospective customer what they’ll will lose out on by overpaying.

Most people only have a vague idea about the value of what they’re getting even when they do a little research. For more on that just go back and reread my article on buying something as simple as an iron. Do we really know the value of the work done on our car? How about buying a lawnmower? Hiring a personal trainer? The list could go on and on with products or services where we can only “ballpark” to get an estimate of value.

A good salesperson will ask lots of questions to identify someone’s needs. From there they’ll begin to point people to products or services that best meet those needs. While doing so they will look for ways to ethically incorporate authority, consensus and scarcity to the degree that each is available. Doing so will help highlight the value of their offer and lead to a better buying experience for the customer.

So remember, even if you’re not a math whiz, V= WIG/P is a formula you want to know cold if you hope to succeed in sales.