A new era of Value Selling

Consequences

The fear of having made a wrong purchase decision is expressed through the psychological phenomenon of buyer’s remorse that we suffer from when we feel insecure about our choice. However, we believe that we can make better and safer decisions in order to minimize risks and, even more so, disappointment. In the field of mathematics, we find decision rules for probabilities that may help make ‘good’ decisions. To protect oneself against dangerous results, a risk surcharge is set for all data situations through the method of ‘expectation concept’. Similarly, the risk-benefit approach (Bernoulli’s principle) tries to capture the risk by formulating a superior utility function. The utility function is determined by the individual decision-maker’s risk appetite. This results in two different methods we can apply to assure we find the right hair dryer or facility services company for our business.

In purchasing organizations, economic decision-makers display a mostly risk-averse behavior. Needless to say, the willingness to take risks varies from person to person, but while our ratio still tries to compare 30 product specifications with regard to 6 decision criteria, our sub consciousness has already selected the products that are put on the shortlist. Yet, the question remains: What is the relationship between emotional and rational decision arguments? Every purchase bears consequences: staff training, reading of the manual, installation period etc. This expenditure is also evaluated and influences the decision-making process as emotional or economic cost. If these ‘expenses’ appear too high, we pick another option or none whatsoever (omission alternative).

We then speak to ourselves: “Is this really necessary at the moment?” and in a business environment: “There is no rush…” or “The return on investment (ROI) is too low, this purchase does not make sense”.

Especially in the buying process, the potential buyer notices whether the salesperson is convinced by his or her offer, because our body language constitutes 55% of said impression, whereas our words only comprise 7%. For this reason, it is all the more important for us to exude a confident impression, are able to anticipate objections and can easily access the product use argumentation.

Consequences for bargain hunters

"There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey. It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot – it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

(John Ruskin, social reformer 1819-1900)

2.5 How Customers Buy Today – A New Decision Model

The internet has not only changed the way we work, play, live or learn, but has also immensely influenced customers’ behavior towards brands. In the past, car dealers fished for customers in the showroom and their relationship dissolved in the time between the purchase and the first repair shop visit. Nowadays customers notice various brands in the decision-making phase. Suppliers and brands are included in the consideration phase, online-media is used, friends are consulted and the results successively eliminated. After signing the contract, customers stay active on the internet. They rate their purchase decision and recommend products and brands to an audience of millions of consumers. In the case of a negative buying experience, the buyer’s remorse is shared on Facebook, YouTube, blogs and review sites. By doing so, the customer contributes to a brand’s development. Marketing experts therefore need to adjust their strategies and invest into the areas consumers dwell. This means bidding farewell to the purchasing funnel, which implies that consumers have many brands in mind at the beginning of the buying process that they sort out systematically. Eventually, the brand affiliation is limited to the product’s use or the contact with customer support.

The new model is called “consumer’s decision journey”, because studies (McKinsey 2010) show that, in the phase of evaluation, interested parties continuously deal with brands of certain categories (premium, price, etc.) that they either include or discard.

The steps of this journey can be portrayed as follows:

Considering → Evaluating → Deciding → Buying

The Individual Phases

1 Considering: Advertisements, displays, recommendations and other external stimuli connect the buyer with products, solutions, services provided by manufacturers of major or minor brand value. Because of the overstimulation, the number of brands is not reduced successively as is the case in the funnel model, but is limited directly via data processing in our sub consciousness. One does not pay attention to every available offer as our mind protects us from a flood of information.

2 Evaluating: The assessment process is initiated by the comparison of offers with the help of review sites, recommendations of friends, acquaintances and colleagues. The decision maker gets smarter, knows more about the offers and changes the selection criteria. This results in the discarding of certain brands that are replaced by new and similar offers. Experiences gained through the exchange with experts, friends, various providers and other sources of information further influence the buyer, because he searches actively and is emotionally biased by other people.

3 Buying: Customers often make their decision upon first exposure to the product. When they hold it in their hands, watch a product demonstration, sit in the car, view the training material etc. Placement, packaging (e.g. Apple), presentation and consultation all play an important role in the decision-making process. Quite often people gain their information on cheaper products (approx. up to 500 €) at a store, only to buy them online for a smaller price. In the domain of capital goods, this is realized through so-called reverse auctions.

Thus, the sub consciousness considers, evaluates and buys. After the purchase, the following steps ensue:

Usage → Enjoyment → Recommendation → Repurchase (loyalty)

If the bond between a potential buyer and the supplier is strong enough, he will return frequently until his buying motives and decision-making criteria evolve from limbic instructions or his environment convinces him of a change. Due to this loyalty cycle, the buyer does not have to take the first step of the journeys of his purchase decisions again.

McKinsey presented this model and conducted a study with roughly 20,000 consumers. The influence of the consumer is much higher in the phases of ‘considering’, ‘enjoyment’, ‘recommendation’ and ‘repurchase’ and the only strong purchasing incentive is another person’s recommendation. An American T-Shirt read ‘Marketing lies’. It is time to implement the new model, rethink budgets and relocate advertising efforts from the phase of consideration to the phase of evaluation and the subsequent loyalty cycle.

Does Target-Group-Specific Advertising Make Sense?

Advertising makes use of the most recent findings in science, which results in the development of very specific target group appropriate campaigns. If people were assessable and predictable, advertisements would be much more useful. Certainly, a large amount of the target group responds, yet the question of efficiency arises, since people change within a short period of time. In order to shape a brand’s image, advertising in different forms of media still renders beneficial. People change according to their environment, loss of job, sickness, development, progression, meditation or change in the family. Due to a profound shift in their living environment people, become intolerant, impatient, uncertain, moody, irascible or vulgar in the course of a few weeks.

It is easy to imagine to which degree target groups transform, for example by considering the increase in transport and the risk of accidents. People that belong to a target group because of their demographic properties, for instance, can be less responsive to advertisements, because their mood and emotional mindset have a stronger influence on an advertisement’s effect. It is crucial whether the advertisement reaches their decisive brain areas or not. It is important to first meet the requirements that make a purchase decision probable, because, as Marx said: “It is not the consciousness of men that determines their existence but their social existence that determines their consciousness”. Hence, the importance of target group definition for advertising efforts should not be underestimated.

So, can biologists and brain researchers help look into the consumer’s brain to reveal his subconscious decision-making patterns? Every year companies waste millions of advertising budgets because their products fail and marketing directors aspire to gain control over this issue. Advice by advertisement psychologists are supposed to yield those that are scientifically found. Is this the eagerly anticipated, strictly scientific access to customers? The industry manipulates B2B and B2C customers consequently and neuromarketing is supposed to make this manipulation more accurate. Brain researchers assume that our subconscious autopilot guides our everyday life and manages our shopping. If it gets more complex, the conscious pilot takes over. The autopilot essentially controls our (purchasing) behavior and is not only faster, but also more efficient when it comes to processing the large amounts of data we receive through advertisements. Without it, we could not survive.

A short story:

Just the other day my son - after having discovered a pair of scissors in our bathroom cabinet - cut his own hair. During his next hair appointment, the hairdresser asked him: "Say, why did you cut your hair so short in the front?" to which he replied: "Because my brain told me to".

What our brain 'does' depends on inner and outer stimuli. The ones on the inside are produced by our thoughts and memories. Memory, as indicated above, means that we are quick to draw a comparison between knowing and not knowing something and how we evaluated it: positive or negative? Hence the saying "There is no second chance for a first impression". On the one hand, we are constantly influenced and guided by our surroundings, on the other hand, we sense intrinsic influences that filter or enhance our environment. With this, our perceptive filters are meant, as are the preferred sensory channels, such as the visual, auditive, sensory, olfactory or gustatory channel.

The procedure of the occurrence is resorbed as a sensory stimulus: from the assessment of information to the initiation of a certain emotion. The stimulus processing takes place in the amygdala, the central region that increases blood pressure and heartrate and initiates our behavior accordingly.

The James-Lange-theory in emotion research says that feelings are created because our body reacts to something. For example, our heart starts racing, we break out in a cold sweat or we shake from the cold or vertigo. This means, at first there is a physical feeling, followed by an emotion. A different theory by Cannon-Bard claims that our brain considers something that happens externally frightening, which results in our thoughts gaining a highly emotional state that increases our heartrate. Evolution taught us that we had to have a quick survival instinct that helped us react instantly when facing a sabretooth tiger or a snake without having to take a detour through the cerebrum, our reason. Renowned emotion researcher Antonio Damasio stands behind the first theory, in spite of Cannon-Bard's possibly being the more plausible one.

Convincibility Influences our Purchase Decision

Robert Cialdini, professor at the Arizona State University wrote the popular book The Psychology of Persuasion (2009). According to him, the most relevant reasons for people to comply and be convinced are: authority, shortage, returned favors social approval, sympathy and obligation.

Authority

People have a deeply rooted feeling of respect for authorities. What used to be leaders or alpha males now are socially recognized experts, doctors, judges, police officers, celebrities, managers and politicians. Renowned titles let people appear greater. They leave a different impression. Information, suggestions and instructions provided by such people influence our actions in certain situations. Obedience is comfortable and saves time. This way we do not have to worry unnecessarily. We rarely ponder the pros and cons of an authority's instruction. We give trust to product consultants that appear confident because we are not familiar with their field and thus do not have the necessary knowledge to draw comparisons. Obedience is an automatic reaction that we rarely ponder or contradict, albeit inquire because we had trouble understanding a chain of argumentation.

Clothes are a symbol of authority: Uniforms, elegant and expensive attire, exclusive brands, watches, cars, paintings, interior decoration or jewelry all emphasizes the effect of people and their surroundings (e.g. Point of Sale). Even if we are impressed by the effect (also charisma) and appearance of someone, we have an acute awareness regarding its impact. We sense whether a person's demeanor is authentic or insincere. Titles, clothes and charisma can replace the professional competence beyond buying processes, yet, once the facts are laid out we quickly realize whether we are confronted with substantiated knowledge or nothing but big talk. Even graduated or habilitated people are not omniscient, but qualified experts in their field. Their title, however, commands respect and underlines authority. Due to the fact, that nowadays all those interested in a product have the opportunity to learn about it thoroughly on the internet, boasters are exposed much quicker than they were 20 years ago. In those days, insurance agents were authorities in their respective fields. Nowadays, we confront them with offers by competitors and force them into a justifying position as opposed to a consulting one.

Shortage

People are more or less susceptible to the principle of shortage. Too often, we are scared of missing out. Think about the so-called bargain bins at clearance sales. Driven by the urge to save or bargain-hunt we even develop a strong competitiveness. The feeling of competing with others is a powerful driving force. This fact is being used by skillful salesmen in conversations. In the car industry, the principle of shortage is employed through long waits in order to force customers into making a decision. Limited editions or the marketing of the iPhone are examples for the creation of a demand. Some people want to be first in line. They are the 'first movers' that like to demonstrate their privileged treatment in the distribution of rare products. They proudly present their iPad Pro at the airport lounge to show that they are not only innovative but also way ahead and that money is not a limiting factor for them.

Indeed, there are also scarce products, such as limited stamps, collector's items or the availability of lecturers for the next sales department meeting. In July 2011, the magazine Focus reported on the auction of deceased pop star Michael Jackson's assets: "At an auction in Las Vegas, parts of Michael Jackson's inheritance reached record prices that far exceeded their estimated value. A rhinestone glove, for example, yielded $ 190.000. Now that he is no longer among us, people are starting to realize that we lost a true legend". This resulted in the increased value of the rare collector's items.

Last winter there was a strong demand for road salt, in 2010, France had fuel delivery problems and the price of gold in times of investment insecurity is skyrocketing. In the disposal of services and system solutions the delivery period is being employed as a scarce resource. The availability of new technology helps decision-makers choose faster. A salesperson can utilize time pressure. However, the principle of shortage is well-known. That is why detailed statements are necessary for a salesman to maintain his believability. Especially since clever customers like to be provocative: "Well, your competition does not have delivery problems."

From a psychological point of view, there is one more important reason that explains why shortage is always going to work: our fear of being deprived of freedom. We do not like to lose the liberty and independence that we have attained. If the selection (see choices) is overly limited, we have the need to maintain this freedom. If the product is not available, we suffer from a loss of power caused by the provider and our environment. Being informed is a clear advantage nowadays and thus, the one that knows about something prior to others is a step ahead. We develop a strong desire for information our superior might keep from us. Forbidden information (such as censorship, exclusion of evidence in a trial) gains a special importance through this. Information about an upcoming shortage of road salt may lead to a significantly increased demand of this commodity. Good marketing creates these rumors, because this special offer is limited to two weeks. Decide now! We decide based on our fear of missing out and do not take time to rationally consider our purchase decision.

Returned Favor – the law of reciprocity

People like to scratch other people’s backs. Consequent to this, the receiving party feels obliged to return the favor. Take the phenomenon of the so-called “Puppy Dog Sales” in the US. You are interested in owning a dog, go to the pet store and the salesman allows you to take one home for the weekend. By doing so, he awards you with trust and does you a favor. With a certainty of 70%, you will buy the dog that you were allowed to take home. If we are permitted to taste several different wines for free at a trade fair, we judge the vineyard’s sales person to be sympathetic and dedicated and feel obliged to purchase from them – as a thank you for his generosity and the time he set aside for us. If he turns his attention to another customer during your conversation, you feel either mistreated or pressured into buying something. Just as we prefer to give back as we were given, we return favors after receiving a birthday present, an invitation or a free sample. Further examples include test drives and free trial periods for an iPhone or harvesters. If the customer has been advised intensively and professionally, he feels obliged to award the salesman with a small order at the very least. Referral marketing is built on this basis. Which friend or colleague would you like to treat to financial consulting as thorough, professional and individual as this?

Social Approval

In order to figure out what’s “right” we make out what others deem right and fall into line consciously or subconsciously. The more something is practiced the more correct it seems. The principle of social approval helps us with the decision of how to act compliantly. People let themselves be convinced by acting in compliance with the social evidence. If you feel insecure regarding your choices, you look for this guidance. The effect of social approval is increased if we estimate ourselves to be in accordance with our role models. An example for this is the Stuttgart-21-demonstration, which emphasizes that many people are inclined to join in, because they consider it right and socially approved to revolt against the planned reconstruction of the new central railway station. Some influential leaders managed to mobilize thousands of followers to speak up against the plans made by the government and the train company.

In the field of sales, this means that numerous references or market shares can emphasize the fact that many customers have chosen the supplier’s offer. Many salespeople and convictional strategists use the principle of social approval in argumentations, negotiations and debates in order to convince their opposite. From a psychological point of view, this means making use of a single person’s inability to react against an actual or alleged majority. Hence, this strategy is manipulative and applies convictional power.

It takes a lot of experience, market and product knowledge, maturity and confidence to actively resist an ostensible or factual leading opinion or use of a product or solution. The 70’s brought us the slogan “Whenever you buy IBM, you never get fired”. If you buy from the market leader, nobody can accuse you of making a bad decision for your employer or purchaser. Established products are popular and thus risk reducing. They furthermore satisfy the need for security in the decision-making process.

Classic wording in commercials include “250 customers of the Fortune 500 enterprise cannot be wrong” or “According to Stiftung Warentest [leading German consumer safety group], this camera has been on first place 4 years in a row”. As a result, it was easy for to sell their systems in the 80’s, as most companies worldwide already employed this technology. IBM Apple´s IPhone operating system IOS prevailed against Microsoft’s operating system and the Amazon kindle fire phone was thus regarded as socially approved. Even Blackberry users made the change to IOS or Android finally.