Today, most sales and marketing executives would agree that they should deliver insight to customers. But they question how can they deliver insight to an executive with decades of experience? The problem is that they’ve usually set the bar too high for themselves. To deliver insight, they believe they must teach the customer something new about how to run their business. No wonder they can’t do it! Instead of trying to out-think a c-level executive, it’s easier to find insights within the customer’s blind spots; namely, the optimism and status quo biases. Once salespeople discover how fertile blind spots are for uncovering insights, they will finally be able to find and deliver insights.
Customers often discount a seller’s claims for gains because of the optimism bias. This is a well-documented cognitive bias in which individuals overestimate their own abilities relative to others. Do you, for instance, feel that you are an above average driver? I know I do, and so did 93% of surveyed US drivers.
Because customers tend to overestimate their current situation, their baseline is inflated. As a result, the seller’s delta between the customer’s current and future state is minimized.
HOW TO COUNTER THE OPTIMISM BIAS WITH INSIGHT
Make customers aware that they aren’t operating optimally. In this way, sellers can reduce the customers’ baseline and thereby increase the value of their product.
STATUS QUO BIAS
If buyers put both the status quo and new products up on a shelf and objectively evaluated the pros and cons of each, the status quo bias would not exist.
But buyers are not objective. The endowment effect causes buyers to use the status quo as a reference point to evaluate the attractiveness of new products. But only new products will be placed on the figurative evaluation shelf. They will not evaluate the risk of the status quo, because this risk has now become a relative benefit of the new product. The result is that this relative benefit is disproportionately overshadowed by the risk of change, because the “loss aversion” theory causes people to feel the pain of loss two to three times more than the pleasure of gains.
“Loss aversion” was discovered by two psychologists: Daniel Kahneman and Amos Tversky. In an interview just after winning the Nobel Prize for economics in 2002, Kahneman said:
“There is an asymmetry between gains and losses, and it really is very dramatic and very easy to see. In my classes, I say: ‘I’m going to toss a coin, and if it’s tails, you lose $10. How much would you have to gain on winning in order for this gamble to be acceptable to you?’
People want more than $20 before it is acceptable. And now I’ve been doing the same thing with executives or very rich people, asking about tossing a coin and losing $10,000 if it’s tails. And they want $20,000 before they’ll take the gamble.”
To understand loss aversion, just imagine that you are about to jump off a high diving board. From the ground, the 20-foot diving tower doesn’t look that high. So you climb the ladder with confidence. But as you approach the edge of the diving board and look down at the water, your confidence suddenly turns to terror. The tower now looks more like 40 to 60 feet high.
When customers look at the opportunity to buy the seller’s product from the ground up, it appears small. But when they look at the risk of change from the top down, it appears large.
The endowment effect and loss aversion both contribute to the status quo bias, and this bias creates blind spots of unrecognized value. Without a full appreciation of the value of new products, it’s no wonder over 60% of sales opportunities end with the customer deciding not to buy. Hence, the status quo bias is a fertile area for insights, and illuminating unrecognized value with insights will help to reduce the number of lost sales opportunities.
HOW TO COUNTER THE STATUS QUO BIAS WITH INSIGHT
Because customers evaluate the risk of change- not the risk of staying the same, customers will not appreciate the full value of your product until you perform a risk assessment on the status quo.
This is accomplished by taking customers to the top of the metaphorical diving tower, so that they can look down and feel the risk of staying the same. Specifically the seller must shine the light of insight on the costs and the problems to the customer’s operations in the absence of having the seller’s unique capabilities.
Salespeople may object that they already tell the customer the risks of the status quo, or that the customer is aware of the risks. But salespeople and customers often have an incomplete view of the risks of the status quo. The customer’s view is limited because of the status quo bias, and the salesperson’s view is limited because s/he generally only has product knowledge. Without customer knowledge, salespeople can only provide a superficial picture of the risk of the status quo. They might, for example, state that the customer’s current system lacks timeliness or is prone to error. They then quickly transition to what they know- the benefits of their product. But to the customer, the salesperson’s product is just another solution looking for a problem that doesn’t apply to them. The result, customers will continue to believe their current product is good enough, hence, no reason to change.
HOW INSIGHT IS DELIVERED IS AS IMPORTANT AS THE INSIGHT
Insight that not only reduces the customer’s baseline but also exposes the risks of the status quo is a sensitive message to deliver, because sellers must highlight the weaknesses of the customer’s current situation.
To inspire the customer to change, the salesperson will have to do more than offer vague justifications. S/he will have to deliver so much insight that the customer realizes the current product is broken beyond repair. Otherwise, the customer will try to duct tape their current product together with internal resources to avoid change. To the seller, it can feel as though the customer has erected a wall to protect the status quo. To get their insight past the protective wall, the seller can use the following four ways to deliver insight, but only two are effective:
- Directly: Showing a customer with 25 years of experience how the status quo hinders their performance is difficult, especially when the seller has “salesperson” written on his/her business card. This direct approach may have the following effect: i) Come across as an attack and cause the customer to become defensive and shut down, or; ii) it may simply bounce off the customer’s defensive wall with no effect.
- Third Party Research: Because research is objective, customers do not usually feel attacked. Unfortunately, research is scarce and seldom available.
- Provocative Questions: They work best to solidify established beliefs. It’s difficult to lead customers to insights with questions, because customers have no frame of reference that they can turn to for answers.
- Insight-Based Customer Stories: Because a customer story is about someone else, they are non-threatening. Without feeling attacked, customers can now relax and listen to the story. If the story is insightful enough, customers may start to tell themselves a new story where new choices make more sense. Most importantly, research has shown that stories can activate the region of the brain that processes sights, sounds, tastes, and movement. Hence, sharing a story is the best way to take the customer to the top of that diving tower.
Example One: I recently worked with a sales executive at a software company who was trying to get a c-level executive to switch their Learning Management System (LMS) to the cloud. The problem was that the c-level executive felt his current LMS was good enough, because the risks of change outweighed the benefits.
I worked with the sales executive to craft a story that would show how the current LMS wasn’t good enough by highlighting the cost of the status quo. The sales executive shared with me a story about a company who had a similar goal: To reduce training costs by moving from classroom to web-based training. The problem was that Ellen, the VP of Training, was forced to work with tools that were up to four years out of date, because she had to wait for IT to update the entire corporate ERP system every 3 to 4 years. As a result, quarterly updates for her LMS were only happening 2 to 3 times a decade. Ellen knew that she had to find a way to upgrade her LMS on a quarterly basis when her cost-savings plan was at risk, because many of the employees were not taking the training. Ellen couldn’t blame them. Innovation had made her corporate LMS out of step with how employees expected to consume information.
The story so far has set up the risks of the status quo. But the risks were still abstract, because I couldn’t see what he meant by “Innovation had made her corporate LMS out of step with how employees expected to consume information.” So I asked the sales executive to be more concrete, and he replied: “To access a course, for example, employees had to click on a link that would then take them to the homepage for learning, only to then be forced to search through a maze of information for the required course. No wonder drop-offs were so high.” Suddenly, the light of insight was switched on. I could visualize the risk, so it felt real. Instead of having a vague notion of the risks, I could now finally see the holes in the status quo of the LMS. It was no longer good enough: It was sinking. I was now ready to be rescued by the sales executive’s solution, because pockets of unrecognized risk had now been illuminated with insight.
Example Two: If a politician wanted to win my vote with a promise to reduce government spending, s/he could show me how expenditures exceed revenue and how the level of debt is unsustainable. However, the risks of the status quo (excessive government spending) would not feel as real as new government spending cuts.
Contrasting the gain to the pain is the best way to create value, because customers will never know the value of your product until they know what it isn’t. Setting up two ends of the scale is how we evaluate value, because binary opposition is a fundamental organizer of human thought. To understand love, for instance, we must know hate. To know hot, we must know cold. For customers to appreciate the benefits of the seller’s product, they first need to know the problems they’ll face if they don’t. Sellers need to shine the light of insight on the risks of the status quo. Until that time, salespeople will be trying to use their product to rescue customers who are only ankle deep in problems.