What if valuing “customer benefit” had its limits?!

Nicolas Caron

Published : 25 October 2016
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Faut-il toujours vendre le bénéfice client ?

All vendors with a minimum of experience in sales techniques know that a good argumentation should end with an emphasis on customer benefit. And whatever the technique, the principle remains the same: to put the stress on what customers will get from the service or product they are being sold.

It does make perfect sense because your customers are primarily concerned with THEIR own interests, needs and preoccupations.

Thus, your customers are not buying…

  • a CRM software, but greater efficiency in teamwork;
  • a financial product, but a better retirement pension;
  • a business training course, but improvement in sales results;
  • a drill, but quality holes…

We therefore take good care to highlight what customers will gain.

Well, all this sounds perfectly logical… until the winner of a Nobel prize in economics tells us that the fear of a loss is a much more effective leverage than the prospect of a gain… Daniel Kahneman, who was awarded the Nobel prize in 2002 for his work on judgment and decision making, describes this phenomenon in his book “Thinking, Fast and Slow”.

 

thinking-fast-and-low

In this work, we are brilliantly reminded of the incredible power of loss aversion in our decision making. Thus, we feel a stronger incentive for avoiding losses than for obtaining gains. To put it plainly, the fear of losing 100 euros is more intense than the hope of gaining 150. The author challenges us and even proposes that we measure the extent of our own loss aversion by posing the following dilemma: What is the smallest gain that we need to balance an equal chance of losing 100 euros? For many people, the answer is about 200 euros, twice as much as the loss. This rate of loss aversion was estimated through different experiences and ranges between 1.5 and 2.5.

To illustrate this phenomenon, the author also mentions the concept of reference point. The reference point is sometimes represented by the status quo, but it can also be a future goal: Not reaching a goal is a loss, surpassing it is a gain, and aversion to failure is much stronger than the desire to outdo the goal.

To explain this principle, Daniel Kahneman cites a study by two economists – Devin Pope and Maurice Schweitzer – who reasoned that golf provided a perfect example of a reference point… Those who know me a little more than through this blog know that I could not remain indifferent to this example… Here’s what Kahneman reports:

Every hole on the golf course has a number of strokes associated with it; the par number provides the baseline for good – but not outstanding – performance. For a professional golfer, a birdie (one stroke under par) is a gain, and a bogey (one stroke over par) is a loss.

Pope and Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie. They analysed more than 2.5 million putts in exquisite detail to test that prediction. They were right. Whether the putt was easy or hard, at every distance from the hole, the players were more successful when putting for par than for a birdie. The difference in their rate of success when going for par (to avoid a bogey) or for a birdie was 3.6%. This difference is not trivial. Tiger Woods was one of the “participants” in their study. If in his best years Tiger Woods had managed to putt as well for birdies as he did for par, his average tournament score would have improved by one stroke and his earnings by almost $1 million per season.

In fact, Daniel Kahneman dedicates nearly 50 pages to the sole phenomenon of loss aversion. It is an omnipresent feature in negotiations, especially in renegotiations where the reference point (the current contract) determines right from the outset that what will be gained by one party will be considered a loss by the other. This is what makes agreements so difficult to reach.

Well, I’ll leave it here for this quick recap. Get your hands on Kahneman’s book, you will discover numerous psychological biases which we regularly fall for.

Now that we know that the majority of our customers are also likely to be very sensitive to loss aversion, how can we factor this in the sales equation?

 

First three ideas.

 Voici 3 pistes de transpositions

Revisit your sales strategy

strategie-de-vente-le-grand-blog-de-la-vente

Many salespeople attempt to convince their prospect by highlighting the added value of their proposal. It’s normal. We love what we do and the temptation is great to try and make our customer feel the same about what makes us “different”. So the idea is to get the customer to give up his current solution by praising the benefits of your offer. The problem – if we accept to factor in the results of loss aversion studies – is that this exercise of persuasion is very difficult. You would have to be a virtuoso to convince a prospect that they will get twice as many potential gains as risks by going along with you… (remember that aversion rate is estimated between 1.5 and 2.5 depending on the individual).

So when you want to convince someone to buy your solution, perhaps it would be wiser to start by illustrating the losses associated with the status quo. What are the risks of maintaining the current solution? It is when your client understands this that they will suddenly be more sensitive to the gains put forward by your solution. Before they understand this, they are mainly considering the risks (the potential loss) of following you.

 

 

Transform the benefits into avoided losses

Aversion à la perte - Le grand blog de la vente

When presenting arguments for the product, bearing in mind the example cited earlier in this article, it would therefore be judicious to alternate between “traditional” argumentations highlighting customer benefits and argumentations highlighting avoided losses. And if you have a doubt, if you dare not take the risk of changing your methods (due to your own aversion to loss?), then you can go with the “double impact” strategy by relying on both tactics.

Let’s try this with three examples :

  • Argument : Speed
    • Benefit: You will save time
    • Avoided loss: You won’t get overtaken by the competition.
  • Argument : A contact with a preferred advisor
    • Benefit: You will get personalized advice from someone who knows you
    • Avoided loss: You won’t waste time explaining the same things over and over again.
  • Argument : The price
    • Benefit: You’ll gain money
    • Avoided loss: You won’t spend money unnecessarily

It’s up to you now to test it out and extend the list…

 

 

Anchor your negotiations on a good foundation.

ancrer-la-negociation-le-grand-blog-de-la-vente

What we call an anchor in negotiations corresponds to what Daniel Kahneman calls a reference point. As you will recall, the anchor is the first figure mentioned in a negotiation. This figure is very important because it strongly influences what happens next. Setting the anchor too low will jeopardize your profits. Setting it too high puts your credibility on the spot… However, a well-calculated anchor can be used as a good reference point to turn your future concessions into apparent losses for you, and gains for your contact. And since losses are painful, the least you can do is balance them out with valuable compensations…

Well, I hope these considerations will help you take a step back on the preparation of your upcoming interviews.

If you have other ideas, please share them with us in the comments.….

It’s up to you now!

Good business to all!

Nicolas Caron

 

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