“Imagine that you’re an animal in the jungle ten thousand years ago, and all of a sudden you see a tiger. . . . It evokes an emotion, and then you just get an action plan that says, ‘Run as fast as you can!’ Now today we don’t have tigers anymore, but we still have emotions. And they control us in many ways.” — Dan Ariely
We’re going to talk about retail sales in a moment, so bear with me.
Dan Ariely is a psychology professor at Duke University who wrote the book Predictably Irrational, which points up how our mental rules of thumb often lead us astray. I haven’t read it yet, but I’ve listened to some of Ariely’s lectures and interviews. Also I’ve read related books by Malcolm Gladwell and Daniel Gilbert. (From them I learned how boringly normal is my brain, in terms of being fooled by irrational assumptions.)
Ariely presents ideas that are interesting and innovative. Now and then, however, he betrays a certain attitude among many in the fields of economics and psychology. Can we call it a bias? It’s the idea that careful thought is superior to instincts and feelings, and that modern humans need to upgrade their mental skills so they can make decisions better than those offered by our primitive emotions.
I’ve critiqued this attitude elsewhere, to counter the idea that people are irrational when they fear losses more than they desire gains. (An algorithm can play Blackjack all day and lose millions on paper to no effect, but if you do this at a casino you can end up being shot at by loan sharks. So, no, it’s not wrong for a living being to be extra-cautious about the downside.) Now it’s popped up in connection with sales tactics, so it’s time to say something again.
Ariely’s researchers asked customers at a car dealership what they were giving up by purchasing a new vehicle. “What would you not be able to do?” In other words, they were asking about the “opportunity costs” of buying a car. Most responders were flummoxed. They replied that they’d no longer be able to buy a different make or model. “What we would have wanted people to say,” suggested Ariely, “is that ‘This would be three weeks of vacation over the next three years and two hundred lattes and seventy books.’ And so on.”
…Say what? People are dopes because they haven’t considered all the ways they could have spent thirty thousand dollars instead of on a car? Like a vacation?!? But cars are essential to most people. They won’t trade basic transportation for a trip to the Bahamas! It’s like asking, “What could you do with all that money you spend on food?” Nobody’s gonna starve to death to pay for a vacation. So the correct answer really is “I could spend it on another make of car.” Opportunity costs don’t much matter if you’d never allocate the money to a completely different product.
We can argue about whether this item or that is an opportunity cost. The main point is, there’s a notion in academic circles that people are basically stupid around money.
Ariely cites an experiment involving parking meters. People were asked whether, if they needed a quarter to put in the meter, they’d more likely accept one from a passerby who charges them a dollar for it … or from someone who charges a buck to run to the bank and get the change for them. Most people would prefer the latter — apparently a bit of legwork offsets the gouging. But Ariely notes that both offers cost 75 cents, so it shouldn’t matter which one people accept.
It shouldn’t … but it does! And there’s a good reason — people hate being humiliated by a person who seems to take advantage of their plight. So it’s not just about the net fiscal cost; it’s also about social standing, something vital to most humans.
(One workaround is to accept the first offer — a quarter for a dollar — and thank the stranger for solving an awkward problem for so low a price. This cancels the humiliation factor … and you get your quarter much faster than from the guy who runs to the bank.)
Economists aren’t the only ones who tend to look down at others’ buying habits. Sales reps soon learn that folks have odd quirks that can be exploited by the sales team. Before long, reps may feel contempt for their own customers.
Again, it’s useful to realize that people make decisions that only seem odd because we’re not seeing things from their angle. A few points to remember:
- Customers are aware of opportunity costs, just not the ones economists think they should consider. So go ahead and upsell them on the higher trim package. Just know they won’t starve to pay for it.
- Customers will give up time and money to avoid being perceived as weak. They’ll turn down good offers if presented — as with the dollar-for-quarter scenario above — in an unseemly manner.
- People are much more concerned about losses than gains. While huge returns are wonderful, serious setbacks can be dangerous. “Rewards . . . have less of a life-threatening impact.” You can’t spend riches if you recently got killed by sudden poverty. When selling a package that includes risks, be sure the upside is at least twice the downside.
It turns out your customers aren’t dumb after all. It’s just that their motives are more complex than we suspected.
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Jim Hull SOLUTIONS 