Bias # 1 – Loss Aversion Bias – We hate to lose!
I don’t know about you, but I hate to lose. Most of us do to some extent. We call it loss aversion bias. It’s a fact that humans are wired to avoid risk and to seek safety, therefore it’s natural to perceive change as risky. Ask yourself if you’d rather take $500 guaranteed or flip a coin and if heads you get $1,000 or tails, you get nothing. Two-thirds of the people take the guarantee. A bird in the hand is worth two in the bush.
But sometimes we will seek risk. Losing situations cause us to seek risk. When we’re in the hole and staying with the status quo will result in a loss, we are likely to accept risk. That’s why the betting on long-shots goes way up at the racetrack in the final few races. People hate to lose a lot more than they like to win.
From a sales perspective, you need to understand that every proposal you make to a prospect is a request for them to change. Given that people perceive change as risky, how do we get them to accept your proposal? The short answer is to present your proposal in a way where the status quo is the riskier situation! If you want them to take action, then “selling to the risk” is a good way to go.
Given that, remember that in your proposal and your discussions with your prospects that two things will be going through their heads: should I change, and if I do, should I go with these folks? And, in answering both those questions they will ask themselves: What’s the impact on the business and what’s the impact on me?
Presenting your proposal and your value proposition as preventing a loss, not as achieving a gain is far more likely to move the person to action. And, you’ve got to do that from two perspectives:
- The business perspective. This is the one we usually think about, the risk associated with the project itself. So, think hard about how you present the value of your offering in terms of business results. If you present it as “working with us, you can expect a 15% gain in …” you are presenting them with a gain and they are likely to be risk averse, i.e. not wanting to take the risk of changing.
Or, you could phrase it like this: “you are losing ground. If you stay with what you are doing, you risk being 15% behind your competition.” “You’ll save money by …” is not as effective as “You’re losing money by not…” This way you are presenting them with a loss, in which case they are more likely to accept risk. It is to your advantage to make them think their current situation is on a downward spiral and the risk of not buying from you is a loss. It must appear that the status quo is the riskier situation.
- The personal perspective. Personal wins and preventing-a-loss are more powerful than the business perspective. Fear of personal loss is a big motivator. Being fired for a bungled project or poor results is much worse than getting a raise, bonus, promotion, or kudos for a successful project. It would be quite rare for a person to want to move forward with a project that will result in a personal loss even if it had an overwhelming chance of success.
You might be thinking, “how do you know the personal impact?” The answer is quite simple, ask your existing customers! They will tell you. We frequently tell our clients that the most important thing a seller can understand is why people buy from them and what the personal impact of their solutions is. One time we asked a client about how our work affected them personally and they said “Are you kidding? I now routinely go to my daughter’s soccer games!”
We strongly suggest you take the time to think about how you will explain your value proposition in terms of preventing a loss versus giving them a gain.
If you look around you will see that “selling to the risk” is quite common. The most common place you will see it is when you are trying to book travel: “only three seats/rooms left at this price.”
Fear of loss is a powerful motivator!
(Next page, Confirmation Bias)
2] Read our LinkedIn article “Learning to sell from a 16-yr old beach vendor in the Dominican Republic”. We ended up spending over $100 because this kid had learned his value proposition from his existing customers.