The Psychology of Irrational Decision Making

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“Humanity is in the highest degree irrational so that there is no prospect of influencing it by reasonable arguments.” — Sigmund Freud

Although Freud was describing how humans respond to therapy, he could also be describing buyers and sellers. Buyers can be irrational, so you can’t just use rational methods and techniques to persuade them. Buyers will choose alternatives using both rational and irrational criteria. This mental tug of war can be a challenge for salespeople.

To change someone’s mind, you must first understand his or her mind. There are several biases that impact our decisions. These biases cause buyers to think your price is too high. These biases cause buyers to focus on immediate gains and ignore greater, long-term gains. These biases also cause buyers to stick with the status quo and ignore new ideas.

If salespeople don’t understand these biases, they will struggle to overcome these biases. In the fourth edition of Value-Added Selling, we explored the dynamics of decision making. Here is an overview of the biases that impact decision making and, more importantly, how to manage these biases throughout the decision-making process.

Immediacy Bias
Humans are hard-wired for immediate gains. Our desire for instant gratification served us well in the caveman days. If hungry, find food. If thirsty, find water. If tired, sleep. However, in today’s world, the ability to delay gratification is often considered a leading contributor to overall success.

Humans opt for an immediate, short-term gain over a long-term gain. That is one reason buyers focus on the price difference between you and the competition. The difference between your price and the competitor’s price is a short-term gain. The price difference is tangible and real. Your long-term value, although more impactful, is less tangible.

To get buyers past this bias, they need to think long term. Ask buyers questions that cause them to think long term. A long-term question forces buyers to think about long-term outcomes and long-term consequences. If buyers think long term, price becomes less of an issue.

Loss Aversion Bias
Losses loom larger than gains. That means we would rather not lose than win. When buyers are making decisions, they focus more on what they are losing versus what they are gaining. When buyers are acquiring your solution, they are more likely to focus on what they are giving up (their money) versus what they will gain from your solution.

When buyers focus on the money they are giving up, turn their attention to the value they are also giving up. When presenting your value-added solution, it’s critical that buyers understand what they give up by not choosing your solution. In the new edition of Value-Added Selling, we call this the pain proposition. Emphasize that the greater cost is not the price paid; it’s the cost of doing nothing and getting nothing.

In Daniel Kahneman’s Thinking Fast and Slow, he mentions that people need to gain 1.5–2.5 times more than what they stand to lose. For example, if your solution is $1,000 more than the competition, the buyer will need to gain at least $1,500–$2,500 in value. In your presentations, detail how your solution will provide 1.5–2.5 times what they are giving up.

Status Quo Bias
Buyers like to stick with what they know. Buyers prefer familiar suppliers and familiar solutions. When buyers are presented with multiple options that seem similar, they usually stay with the incumbent supplier.

The status quo bias also impacts buyers considering a new technology, a new process, or a new way of approaching or solving a problem. When selling a new idea, present the familiarity of the new idea. In the new Value-Added Selling, this is called finding a customer parallel. Identify the underlying concept you are selling, demonstrate how the buyer is already using the concept, and then show the linkage with your solution. This shows the buyer how something new is fundamentally something familiar.

For example, let’s say you are selling the buyer on a flooring solution that will increase the overall value of his or her home. The underlying concept you are selling is not flooring; it’s increased home value. As the salesperson, you would then find other investments the customer has made to increase the value of his or her home. Maybe it’s new windows, state-of-the-art appliances, or an addition. Whatever the example, show how your flooring solution is essentially the same. The buyer will then view this idea as the same. Your once-foreign concept is now a familiar concept.

Buyers are not always rational decision makers. If they were, they would choose to maximize all of their decisions based on the long-term gain. But they don’t. Don’t get too frustrated by it; learn from it. The only way to overcome these biases is first to understand them. Identify the biases impacting your customers’ decisions. These decision-making biases represent a challenge for some salespeople and an opportunity for other salespeople. Embrace these techniques and learn how to persuade the buyer to choose your value-added solution more effectively.

Paul Reilly is President of Tom Reilly Training and coauthor of Value-Added Selling, fourth edition (McGraw-Hill 2018). For additional information on training programs, call or email Paul at 636.778.0175 or paul@reillysalestraining.com. You can also visit reillysalestraining.com and sign up for his free newsletter.

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