The Psychology Behind Customer Decisions
Why is something as simple as a cup of coffee enough to change someone’s international travel plans? Why are bronze medalists happier than silver medalists? Why does crossing a dangerous suspension bridge influence a decision made several days later?
The answers to these questions and others lie in the unexpected ways people make decisions.
On the surface, people appear to follow rational and logical processes when making choices. However, below the surface are factors pushing us towards, or away from a decision. Sales professionals need to understand the psychological factors because they influence how their customer's make purchase decisions.
Short Term Emotions Drive Long Term Decisions
The buying process is an emotional experience. Reputations and finances are at stake. Many sales professionals understand that these emotions influence the customer’s buying decisions. However, few understand how the timing of these emotions impacts the sale. Research from the University of California and Duke University reveals how “emotions on decision making can live longer than the emotional experience itself.”
The psychologists studied what they call the “incidental emotional state.” They learned that we draw on previous, shortlived emotions when making a decision. Moreover, we do so without knowing it. The emotion underlying one decision impacts another decision later.
The researchers cite a study in which participants crossed a suspension bridge they believed was dangerous. The fear of the experience impacted their decisions long after they crossed the bridge.
Put simply, a strong emotion today reverberates through choices we make tomorrow. Even mild emotions about the weather during a college visit influenced enrollment decisions later, according to other research.
The psychologists suggest that emotions drive future decisions due to “behavioral consistency” and “false consensus.”
Initial decisions become an anchor because we tend to choose with consistency. The researchers call this pattern behavioral consistency. One study published in the Journal of Personality and Social Psychology shows that getting a person to agree on one issue will boost the likelihood of getting their agreement on another issue. When people were asked to sign a petition in favor of an initiative to “keep California beautiful,” they were more likely to say yes when later asked to place a safe driving sign in their front yard.
The psychologists also explain that false consensus drives consistency in decision making. This concept suggests that people often assume “that others would probably behave like them when facing a similar scenario.” That is, we believe we are doing what others would do instead of realizing that our past emotions are in play.
These findings are important to sales professionals. They underscore the complex role of emotions in the buying process. The customer’s previous emotions are as important as their current emotions. The research helps explain that decoding the customer’s emotions is difficult because we often falsely attribute a person’s actions to their current emotional state. To understand the customer’s thinking, sales professionals need the present and the past.
Sudden Death Aversion Slows The Sale
The status quo remains one of the biggest challenges to sales professionals. The reason: implementing a new solution always presents more short-term challenges than staying the course. However, the customer’s preference for the status quo is more complex than avoiding short-term hurdles. Researchers at Cornell University and the University of Chicago have learned that a phenomenon called “sudden-death aversion” explains why the status quo is so immovable.
The researchers reviewed data from professional sports teams. They wanted to understand how people make decisions. They examined the outcomes of games in which a team could either kick an extra point to put the game into overtime or choose “sudden death” and try to get the ball into the end zone from two yards away.
They discovered that people choose the “slow option that avoids the short-term risk at the cost of lesser odds of success.” People choose to avoid short-term risks even if doing so puts them on a path to losing. This characteristic of decision making is not limited to professional sports. As the researchers write, this trait “reflects a common bias that can lead to nonoptimal decision making in a great many contexts, some far removed from the gridiron.”
Avoiding short-term risk is logical. The problem, however, is that this avoidance is so strong that we often choose an option with lower odds of success because it puts the risk of failure further down the road.
Throughout their archival analyses and controlled experiments, the researchers learned that people defer risk at their own peril. The researchers attribute sudden-death aversion to myopic loss aversion and fears of “tempting fate.”
Myopic loss aversion is the tendency to make decisions with a focus limited to the short term. This aversion is problematic because a big choice is often followed by a near-term upheaval. Therefore, we see these upheavals looming just a short distance away, and we stop our analysis. Instead, we should look further down the road rather than limit our assessment to immediate outcomes.
Oncoming challenges like implementation and adoption root customers to the status quo, a choice that avoids these responsibilities but ultimately leaves them in a less-than optimal position. This pattern of thought leads customers to the sense that they are “tempting fate” and taking a risk that doesn’t need to be taken. Unfortunately, this thinking leaves customers anchored to the status quo. It also leaves sales professionals facing a steep incline.
Defaults Influence Decision Making
A group of psychologists at Princeton and Columbia were curious about the role of defaults in decision making. They wanted to know how and why preselected options influence our decisions. To get answers, they reviewed 58 different studies. In performing this “meta-analysis,” a study of studies, they learned that, “on average, defaults exert a considerable influence on decisions.” Many of us experience this phenomenon every day but are unaware of its presence.
These decisions are not small. Defaults influence the way we plan for retirement, our choice to donate our organs, and our impact on the environment. Defaults are powerful.
However, the same group of researchers caution that there is “substantial variability in defaults’ effectiveness, suggesting that both when and how defaults are deployed matter.” They learned that defaults drive different outcomes based on the way they are presented and the context in which they are presented.
Duke University Psychology and Behavioral Economics professor Dan Ariely explains that “we actually don’t know our preferences that well.” Therefore, the context in which options are presented influences our decisions. Dan illustrates this concept with a hypothetical trip to Rome.
He offers a choice. You could have an all-expenses paid trip to Rome for the weekend or an all-expenses paid trip to Paris for the weekend.
What do you do when you want to influence the decision maker to choose the trip to Rome? This task is challenging. Some will have a natural preference for Paris. They will want the unique landmarks and culture of that city. Selling Rome, it turns out, only requires a cup of coffee.
Dan explains that people’s preferences change when he includes a third option: an all-expenses paid trip to Rome that doesn’t include coffee. “If you want coffee, you have to pay for it yourself, it’s two euros 50,” he explains. Now the three choices are: A free trip to Paris, A free trip to Rome, A free trip to Rome, coffee not included.
This is where decision influence comes into play. “The fact that you have Rome without coffee makes Rome with coffee look superior, and not just to Rome without coffee — even superior to Paris,” he explains. Rome with coffee becomes the top choice.
The finding is that context influences our decisions. The challenge for sales professionals is that they must present their solution within the context of the customer’s world, and in that context, the status quo is Rome with coffee.
Therefore, sales professionals must understand the key factors influencing decisions. The researchers at Princeton and Columbia call these factors “channels.”
The Fear of Loss Overpowers Expected Gains
Fear drives our decisions. Sales professionals know this well. They must manage the customer’s fear throughout the buying journey. Managing another’s fear, however, is difficult because people give more weight to the fear of loss than they do the excitement of a gain. In other words, “losses loom larger than gains,” according to work published in one of the most cited behavioral research papers of all time.
Nobel prize winner Daniel Kahneman explains that “the aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount.”This idea is called prospect theory.
Several years after Kahneman published these findings, other researchers took notice of prospect theory in an unexpected place: the 1992 Summer Olympics. They noticed that bronze medalists were happier than silver medalists. They wanted to understand why.
They learned that “bronze medalists who were not expecting a medal were happier than silver medalists with gold medal dreams.” The silver medalists believed that they lost the gold medal. In contrast, the bronze medalists believed that they won a spot at the podium.
The fear of loss exerts more influence than the satisfaction of a similar-sized gain.
The perception of loss was so much stronger that it made the better-performing silver medalists feel worse than the underperforming bronze medal winners.
The prevalence of prospect theory has relevance for sales professionals seeking to ease customer fears which exert a powerful influence over buying decisions.
The researchers conducting the study of Olympic athletes decided to expand their research. They designed another study and split participants into two groups. Both groups took a practice test of verbal ability. One group received feedback on their performance, while the other group did not. Those in the feedback group developed expectations.
When it was time to take the real test, the researchers learned that the participant’s reactions to their performance was highly correlated to the feedback received. This finding is important because it illustrates that feedback can be as powerful, or more so, than the actual outcome. As the researchers remarked, “As actual outcomes become more disparate from expected outcomes, emotions are amplified.”
Sales professionals can put these findings to use by helping customers right-size their expectations for a given solution. With a realistic expectation of outcomes, customers are more likely to be pleased with the results. As a result, customers will also be more likely to engage in future business with the sales professional. What makes expectations so important is that they begin to shape outcomes before they unfold.
Today’s longer buying journey means that sales professionals have more time to shape the customer’s expectations. In fact, much of the buying journey is the process of customers formulating anticipated outcomes. When sales professionals involve themselves in this process early, they are better positioned to guide that process. Consider research from McKinsey, which shows that sales professionals who immerse themselves in this process early see a “10 percent growth in first-time customers.”
Identity Influences Skeptical Stakeholders
Customers increasingly make buying decisions in teams. Therefore, sales professionals are rethinking how to not only position their solutions, but how they position themselves within the exclusive group of decision makers. Fortunately, social psychology research published in the Personality and Social Psychology Bulletin is offering new ideas on how to approach this challenge.
The researchers at the University of Queensland wanted to understand the role of a newcomer in a group. This role is familiar to sales professionals who face a cohort of buyers that often have a shared history and sometimes even a shared perspective.
An outsider like a sales professional is often regarded with skepticism.
The researchers designed a few experiments to understand why this dynamic exists and how to overcome it. The team of social scientists compared how groups responded to recommendations from two types of people. The first had a long history within a team. The others were outsiders and new to the group. They learned that recommendations “arouse more negativity and are less influential when they stem from a newcomer.”
The researchers discovered that newcomers earned more support when their identities became more aligned to those of the stakeholders. Simply put: becoming “psychologically invested” in the stakeholder’s group drove buy-in.
The study validates the importance of customer centricity. Without becoming customer-centric, a sales professional cannot take even preliminary steps toward recommending a solution. The group regards the outsider with skepticism because the recommendations originate from an external source. This challenge is inherent to sales professionals. Customers are always aware that they are being sold to. Recommendations are initially seen as an attempt to transact business rather than solve a problem.
The study tells us that influencing stakeholder decisions means becoming part of the group. The more a sales professional is seen as an outsider, the more the outsider is questioned.
Recommending a solution is difficult. It suggests that sales professionals “feel the need to change an aspect of the group culture” among those in the buying organization. As a result, the sales professional is engaging in “some type of direct or implied criticism of the group” explain the researchers. When a sales professional becomes more immersed with the stakeholder’s identity, they ease this tension.
Choices Differ From Preferences
Today, business solutions are complex and demand more of the customer’s attention during the buying journey. Meanwhile, quarterly goals and changing economic conditions also compete for their attention. Each of these factors requires the customer to make difficult decisions. This difficulty might explain why people rely more on the immediate context of the situation when making a choice and less on nuanced preferences, according to research from Columbia University.
The researchers explain the difference between a preference and a choice. A preference emerges when a person takes time to assess the value of different options. In contrast, a choice is a context-driven decision. Preferences develop slowly and with analysis. Choices are fast and influenced by their surroundings.
The researchers offer an example of a customer who always buys the same product each time they visit a store. At first, it appears that the customer has a stable preference for this product. Now, imagine the product is moved to another shelf, and the customer starts buying a different product. What does this tell us?
The example tells us that the customer repeatedly bought the same product because it was at eye level on the shelf. Once a different product was at eye level, the customer bought a different brand. The bottom line: “When consumers construct their choices, the critical variable affecting their choice is the context of the decision.”
This research is valuable to sales professionals because it reveals the importance of making the buying process easy for the customer. Asking the customer to exhaustively weigh options and develop their preferences is too taxing. The solution must be at eye level.
The researchers’ work revealed that our preferences are not nearly as consistent as we think because they are easily swayed by context. The researchers call this response to context “choice construction.” Moreover, “choice construction will be more prevalent under greater uncertainty,” and uncertainty abounds in buying decisions.
Uncertainty encourages the buyer to rely on context when making a buying decision. Therefore, it is the sales professional’s job to create a context that makes the decision to buy an easy one.
Research on cognitive load theory suggests that there are three demands placed on us as we explore new information. The first is intrinsic load, which refers to the amount of pre-knowledge required to understand something new. Creating a context that compels the customer means using information that does not require foundational information to be understood.
The second demand is extraneous load, which refers to the medium used to convey an idea. In other words, any extraneous material that is not related to the concept at hand will distract and create unnecessary confusion.
Finally, germane load refers to the level of interpretation needed to grasp a concept. Information with a higher germane load requires the learner to organize more material in the same way they might organize information in a diagram or a flow chart. Limiting the information to only what is most relevant to the customer helps reduce the germane load.
Shaping the context of the buying decision means considering the cognitive load of the messaging. Reducing this burden for the customer will make it easier to understand the value of the solution and make a decision to buy.
To discover specific approaches your sales team can take to address the psychological factors influencing their customer's decision making download the complimentary eBook - The Science of Decision Making: Understanding the Psychology Behind Customer Decisions.
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