Why won't customers change? (Rebroadcast)

Hi friends, Paul Reilly here and welcome to the Q&A Sales Podcast. Salespeople constantly have questions running through their minds, and there always seems to be that one question that is yet to be answered. This show exists for one reason, to answer the most pressing questions facing today's sales professional. So whether you're new to sales or you think you know it all, you probably have a question.

So ask it. Hello everyone, welcome to today's podcast. Well, today we have a very interesting question. This is a question that salespeople ask us all the time.

And that question is, why can I not get my customer or prospect to change? Why don't they 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?

All right. So why don't our customers change? Well, we're going to answer that question today and we're going to take a look at some of the deeper psychology behind that. And there's three things we're going to focus on, the status quo bias, loss aversion, and the endowment effect.

All right. So first things first, let's talk about loss aversion and how it relates to change. Loss aversion basically means that losses loom larger than gains. And one way to look at this is that your customer or prospect, they're 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. And since losses loom larger than gains, it means they focus more on what they have to give up versus what they actually gain. It plays a bigger role in their decision. The loss does.

So here's something to think about. Daniel Kahneman, he wrote Thinking Fast and Slow. He's 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. All right.

But in his book, he has a lot of research on loss aversion and he came up with a ratio. The ratio is one and a half to two and a half times. And what this ratio means is that when people are making decisions and they could potentially gain something, that gain has to be one and a half to two and a half times what they have to give up in order to attain it Now I not going to bore you with all the research but I give you a basic understanding of how he came up with this number So he would do an experiment He talked to several different people, different groups, and he would ask them, you know, if you could potentially lose $10 in a wager, how much would you have to have the opportunity to gain to make it worth it?

And people would give a number that is usually more than $10. They would say things like $15, $20, $25. And after he asked enough people that same question and conducted that experiment, that's where he got that ratio, one and a half to two and a half times what they have to give up. So use that as a benchmark, all right?

If you're going out there and you're trying to displace a supplier at one of your prospects, you've got to go in there and prove that the value you deliver or the cost savings or anything else, it has to be one and a half to two and a half times what they're currently getting. So if their current supplier is saving them 100 labor hours per year with their value added services, you've got to be able to show how you can save them 150 hours for them to consider it, right? Just as an example, think about that.

Think of the the one and a half to two and a half times. It's just a guideline. It's not gospel by any means. But 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 was a study that UCLA had published where UCLA students went around to different utility customers in the California area, and they said to each homeowner, okay, we have two options. You can either choose a more reliable energy grid, so there's going to be less blackouts, things like that, but it's going to be a little more expensive.

Or you could have a less reliable energy grid. you might experience some blackouts in that, but this option is less expensive. Now, for half of them, they said you currently have the less expensive system. For the other half they said you currently have the more expensive more reliable system which would you like to stick with And more times than not people said let stick with what we have knowing there a cheaper price out there People like to stick with what they know.

Now, here's 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.

And we call that finding a parallel or using an analogy. One example might be saying to the customer, look, I understand that you're already sold in 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 costs. Well, what we're offering you is just an extension of that.

Here are all the ways that we can help 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 into your idea.

Now, 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 that they own, the things that they know already. Now, 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.

Now, our goal is to displace that. And this endowment effect, and it's been proven with some really interesting studies, we don't need to go through them all. But at a practical level, you know this, you've experienced this. If anyone's ever tried to sell their home, for example, you meet with the realtor and then you tell the realtor, hey, here's what I think my house is worth.

But then they tell you what it's actually worth, right? And to us, 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. So all 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 trying to convince someone and 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 of this. You know, several years ago, when my dad, Tom, was still in the training business, we were sitting around, we were having lunch, and this is right when I joined him.

And he said, hey, what are some ideas you have on how we can improve around here. Maybe, you know, where should we should invest? How should we, 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, but maybe it's time to work on that. And he paused for a moment, just looked back and said, yeah, I don't think so. We're just not there.

We don't need to do that yet. And we kind of dropped it. Well, it wasn't three weeks later, we're sitting around, we're having lunch again. And my dad just looked at me and he said, Paul, I've got a great idea.

We are 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.

He dismissed it. He said, 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 quicker.

So again, 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. All right. 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 one and a half to two and a half 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 was the endowment effect. People place a higher value on the ideas that are their own versus your idea.

So somehow try to convince and plant your idea in that customer's mind. Thanks for tuning in today. Just a reminder, visit the Q&A sales podcast.com.

You can subscribe to our podcast there. Also, you can ask us a question and we're going to do our best to answer it for you. Thank you for tuning in. Make it a big day.