Friday, July 28, 2017

When It's Impossible to Empathize

Have you ever met a person whose values were so different than yours that it was impossible to empathize?
Image result for sociopath

I often talk about empathy in selling with the people who engage me in sales training.  For this purpose, I’m not talking about the kind of empathy you feel when you see a kid fall off his bike or learn of a person who has just lost a family member.  Since this type of empathy comes natural to almost everyone, it doesn’t need to be taught.

The way we teach people how to empathize is targeted toward reaching a desired outcome.  We ask unique questions that give us an opportunity to understand what is important to the client.  We are looking for the client’s desired outcome (even if they aren’t specifically telling you).  If you can understand where the client wants to be, then you earn the ability to present a way to get there.  We call this Empathy With Accuracy.  

This method of selling isn’t new.  But, the way people communicate has changed by leaps and bounds over the last couple of decades.  So, understanding how to seek out opportunities to be empathetic in person, over the phone, by email, text, skype, and social media is new territory.  We must constantly stay on top of creating the right client experience through all forms of communication.

Getting back to those rare people with whom you cannot relate… the best thing is probably to just forget about trying to sell to them.  I am always up for a challenge.  I have sold things to people from all walks of life.  I have sold to the ultra rich, dirt poor, perfectionists, bohemians, Christians, Jews, Muslims and Hindu.  One thing I know to be true is that you are wasting your time trying to sell to someone whose values are so far from yours that you can’t understand what drives them.  

These people will work you, putting no value on your time or expertise.  They will try to find every angle to get over on you.  They will sap you of all your hard work and intellectual capital and then take the business to someone else, who is willing to take it a step further… Like offering an illegal rebate or some immoral enhancement to the deal that you would not even think to consider.

I’m writing this article, because this just happened to a colleague of mine “John” and I want to bring it to light.  John was recently (after 6 months of very hard work) able to offer a friend, who is a prominent businessman in the Raleigh area, a product that was contractually better than what the friend/client already had.

The client in this situation showed signs of an immoral and irrational behavior from the beginning of the process.  His nature was that he couldn’t be satisfied with even the highest standard of work from John.  He would complain over things that most buyers would be excited about.  He was also hot and cold.  He would be into the sales process with quick responses and helpful info for a week or so and then John wouldn’t hear from him over a simple request for 3 weeks.  When the final offer was in, he seemed unhappy and reluctant to buy, even though he was saving 30% on a product he was already paying for.  He complained that the process took too long and looked for holes in the contract.  He couldn’t find any because there weren’t any.  The contract was actually substantially better than what he was already paying for, yet still, he was trying to find a reason not to buy it.  During the whole process, it seemed like the client was challenging John to beat his current deal, while feeling certain that it couldn’t be done.  And when it was soundly beaten, it was as if the whole process was cheapened further.  Instead of feeling appreciation, he felt disgust.

In the end, the client took John’s intellectual capital and hard work and handed the same deal to a better friend of his (the same guy who sold him the original contract!!).  The commission on the deal was about $10,000.

So what do you do when it seems like this is happening to you?  Here is something that I learned a long time ago that works well.  You let the process commit the client.  You don’t do anything special for them.  Actually, it’s better to fall back on protocols.  Keep it dry and stick to only the essentials of completing the case.  This way, the quality and the value is still great for the client, but you protect yourself from getting emotionally committed to the case and wasting time.  If the client doesn’t follow through, forget it.  It was never going to happen.  Often times though, the people with whom we cannot empathize will end up buying when you take a robot like approach.   

-Insurance Professor

Monday, July 10, 2017

“Morality, like art, means drawing a line somewhere”

It’s December 31st.  You’ve had an ok year.  You are about 3% short of where you need to be for the year.  The higher ups raised your performance goals 10% compared to last year.  They never lower them. Pressure is on.  Stakes are high.  You have a mortgage to pay and a family to feed.  If you don’t hit your year end numbers, you don’t get that big bonus you’ve already spent.  Worse yet, maybe you get fired.  Money problems are one of the most significant factors that lead to divorce.  What do you do?  Do you change a number around?  Sell something to a client that they may not need?  Not only is there not a consequence there is a reward.  Dishonesty can permeate through a system and show up not because of selfish interest but because of a desire to help.

The prevalent theory of dishonesty is the idea of cost–benefit analysis.  What can I gain? What can I lose?  From there we figure out if this is a worthwhile act of dishonesty. If there’s a big cost, we’re not going to be dishonest.  It is really more complicated than that. There are psychological, environmental, or societal factors that may exist to help keep us honest.  

Locksmith Parable

Locks are on doors to keep honest people honest.  1% of people who are honest will always be honest and never steal.  Another 1% will always be dishonest and always try to pick your lock and steal your television.  The rest will be honest as long as the conditions are right.  One of the frightening conclusions is that what separates honest people from not-honest people is not necessarily character, it's opportunity.  Because of the commonality and danger of the first step, what is the difference between people who commit crimes and those who don’t? Is it just missed opportunity?  It’s all about the ability to rationalize dishonesty.

Where Do You Draw The Line?
If it is okay to nudge the truth a little bit but, where do you draw that line?  There is an excerpt from “Three Men in A Boat(to say nothing of the dog)”  I knew a young man once, he was a most conscientious fellow, and, when he took to fly-fishing, he determined never to exaggerate his hauls by more than twenty-five per cent. “When I have caught forty fish,” said he, “then I will tell people that I have caught fifty, and so on. But I will not lie any more than that, because it is sinful to lie.”

Dan Ariely, author of “The Honest Truth About Dishonesty” ran an experiment and gave people 20 simple math problems: each one was a matrix of numbers where people had to find two numbers that added up to ten.

It was a simple enough exercise that anyone could do, but he didn’t give them enough time. At the end of five minutes, people had to put their pencils down and write on another piece of paper how many they solved correctly. They then put the original test paper in the shredder, so nobody would know the true number they had solved. They received $1 for each problem they claimed to have solved correctly.

  • On average, people solved four problems but reported solving six.
  • Nearly 70% cheated.
  • Only 20 out of the 40,000 were “big cheaters”, people who claimed to have solved all 20 problems. They cost the experiment $400.
  • They also found more than 28,000 “little cheaters” who cost the experiment $50,000.

So although there are some big cheaters out there, they are very rare and their overall economic impact is relatively low. On the other hand, there are a lot more “little cheaters” out there and their economic impact is incredibly high.

What The Hell Effect

You made it past 12/31.  What did you decide?   On to January 1st.  Those resolutions aren’t going to break themselves.  It’s diet time.  Now you’ve made it a whole week.  You have been eating healthy the last 7 days.  The moment you say: “today i’m not on a diet, I’ll have a burger.” Once you say “I’m not a dieter”, which is how you defined yourself until now, you usually don’t go back to that definition. You form a new definition for yourself: “I’m not a dieter, what’s the point?”  Once you cheat one time you are more likely to keep doing it.

Dan Ariely, ran a study utilizing a vending machine. The machine was set up to say that bags of candy cost 75 cents on the outside, but its mechanism on the inside was set to zero cents. So when people put money in the vending machine, they would get extra bags of candy, and all of their money back. A big sign on the vending machine read, “If there’s something wrong with this machine, please call this number”. Nobody called, but nobody took more than four bags of candy.

We all struggle with honesty and self-protection.  We want to think of ourselves as decent, honest individuals, which is not consistent with being a liar.  On the other hand, we want to justify being dishonest when it is self-beneficial or protects us from painful truths. Consequently, we walk that fine line between being honest and being dishonest, between acting in accordance with reality and tweaking that existence. Honesty is something of a state of mind. When we lie, it's not always a conscious or rational choice.  

The Solve - Do You Swear To Tell The Whole Truth?

If I caught up with you on your way to work on December 31st and made you sign a form stating all of your reporting is accurate, truthful and in the clients’ best interest, would that have an impact on your day?  Ariely and his colleagues had one group of study participants to recall the Ten Commandments, and the other group to recall 10 books they had read in high school. The latter group largely engaged in widespread but moderate cheating when given subsequent reward-based tasks designed to measure honesty. But the group that recalled the Ten Commandments didn’t cheat at all. The result was the same when they reran the experiment on a group of self-declared atheists who were asked to swear on the Bible.

Oscar Wilde said “Morality, like art, means drawing a line somewhere.”  In every industry, age, and walk of life we are presented with choices that stretch our moral fiber.  Knowing how powerful our brains are at dictating our conscious and subconscious thought process is half the battle. The next time you preface a statement with "To tell you the truth" or "I'm going to be honest with you" ask yourself if that really needed to be said and if everything up to that point was a lie.

Tuesday, June 27, 2017

Anal Fishers

Do you have Anal Fishers?  You know, as friends?  

I know some people who spend their time worrying about the weather and the moon phases.  They think (and talk) about wind direction and water levels and water clarity.  They organize their tackle boxes by color, weight, diving depth, brand, or whatever else.  Their rods and reels are matched, maintained and oiled.  And they could tell you the retrieve speed of all their reels and how many ball bearings they all have.  Their coffee tables are covered in editions of BASS Magazine, and they always have a fishing forum open on their computer.  You could eat off the floor of their bass boats, but they don’t allow their guests to bring food in them because of the crumb risk.  

Watch this old SNL video. It's hilarious.

Here’s the thing, though.  They never actually go fishing.  And when they do, they usually come home with some sort of overanalyzed excuse about why the fish weren't biting.  I know that you know people like this.  They are more planners than doers.  

It isn’t just in fishing that you find these type of people of course.  That just happens to be one of my sports of choice and it makes the title funny.

Anal Fisher.jpg

This reminds me of those in business world who focus on rules, procedures and protocols instead of free thinking and creative problem solving.  These people are usually employees, not business owners.  When they are business owners, they do better as franchisees, since there is a set framework.  

Being Anal Retentive, as Freud characterised it, or having mild Obsessive-Compulsive Personality Disorder (OCPD, not OCD) isn’t always bad for business.  We may even desire these traits in some professionals.  Computer programmers, engineers, and actuaries need to be precise.  

What about consultants, designers, salespeople, and doctors?  Would you prefer these people to be free thinking problem solvers, or rule followers?  Your opinions on this probably vary.  I would say that it could be situational, but flexibility is a nice skill to have when things don’t line up perfectly.  

Right or wrong, I happen to enjoy working and fishing with people who just push through the problems and make it happen.

-Insurance Professor

Friday, June 16, 2017

Anchoring Away: How Much Should You Pay For Something?

How do you know how much you should pay for something? How do you know what’s a deal and what’s a ripoff? You need some sort of reference point...a cue to help you evaluate.
The anchoring effect is a cognitive bias that influences you to rely too heavily on the first piece of information you receive. Stores use it all the time to convince you to buy.  So if you’re shown a pair of jeans for $100 and then a similar pair for $150, then the pair for $150 seem expensive. But if you’re shown a $300 pair and then a $150 pair, the same $150 jeans seem like a steal by comparison.
Remember when J. C. Penney introduced “everyday low pricing?”  They wanted to eliminate coupons and instead create a best price all the time atmosphere.   Too bad they weren’t aware of the power of the anchoring effect. When sales slid bigtime, they got the message. Customers need that anchor number to inform them that they are getting a bargain.

All buyers, no matter what they are purchasing, want to know these two things:
1) What does it cost?
2) What do I get?
Potential customers believe if they know what they’re getting in exchange for the money they’re giving up, they can choose whether or not the product is worth it. Here’s the problem: human beings aren’t rational buyers.  Whether or not something is worth it depends on several factors. Most importantly, it’s decided by our expectations. Expectations are set by anchoring.
Dan Ariely did an experiment on pricing for The Economist.  When he surveyed 100 MIT students about those pricing options, Ariely got these results:
Subscription type
Cost for a year
Percentage who chose it
Web only
Print only
Print and Web
Why did the Economist even bother with that $125 print only option? Ariely conducted a second survey that shows why. In the second survey, Ariely removed the $125 print only option and asked a separate set of 100 MIT students what they would choose.
Here’s what happened:
Subscription type
Cost for a year
Percentage that chose it
Web only
Print and Web
The mere presence of the print only option even though no one chose it prompted a much higher percentage of people to choose the more expensive $125 print and web option. The difference would have amounted to 43 percent more hypothetical revenues for the Economist. Print and web for $125 seems like a much better value when it’s anchored by a $125 print only option and a $59 web only option.
So if you are engaged with a client, should we artificially inflate our prices and let the anchoring effect work its sales trickery?  Um, no.  There is an offsetting sales principle called price integrity which is crucial for building trust and continuous business relationships. We shouldn’t present a higher price without demonstrating more value and we shouldn’t show a lower price without a reduction in benefit.  In both directions, clients should expect and see integrity in the price.

I Know the Market: Trust Me
In an experiment conducted some years ago, real estate agents were given an opportunity to appraise the value of a house that was actually on the market.  They studied the house and the comprehensive booklet of information that included an asking price. Half the agents saw an asking price that was significantly higher than the listed price of the house; the other half saw an asking price that was lower than listing.  Each agent was asked about a reasonable buying price and the lowest point at which they would agree to sell if they owned it.  
What factors affected your judgement?
Remarkedly, the asking price was not one.  They took pride in their ability to ignore it.  Wrong, the anchoring effect was 41%.  That’s a $82,000 difference between a $200,000 house and a $400,000 house assuming it’s the same house just listed differently.  A group of business school students with no real estate experience was 48%.  The only difference was the students admitted to being influenced and the professionals did not.

Does that mean we should disregard the anchoring effect altogether?  If we are providing value, we should be aware of the anchoring effect to help us deliver the highest level of benefit for which our clients are willing to pay. This might mean presenting solutions in a good, better, and best approach for a particular need. Our best option is our anchor and provides the most benefit to our client. Consequently, it has the highest price. If our client is unable or unwilling to purchase this solution, then we have established a point of reference for both benefit and price, allowing us to adjust down our solution until we fit the highest level of benefit with the highest acceptable price.

Peoples’ objections to price rarely have anything to do what is or is not fair. They come from a place of inexperience and emotion.  The client simply doesn’t have the background you have and relaying the message can be difficult.  As someone who is trying to do the best thing for the client you are torn between the elements of price integrity and getting the business.  You have to avoid paralysis by analysis that a prospect can slip into and present your solutions in a manner that gets them to act.  If done properly it is a win for both sides.

Friday, June 2, 2017

Do You Love To Win or Hate To Lose?

Do you love to win or hate to lose?  Pro athletes get asked that question fairly regularly.  What really drives them?  Is there a right answer?  Well, the results are in and people hate losing.  Well, they hate losing more than they like winning at least.   

Prospect theory explains that there is asymmetry between gains and losses, and it really is very dramatic.  Let’s look at an example of how this works with money.

  1. You have $1,000 and you must pick one of the following choices:
Choice A: You have a 50% chance of gaining $1,000, and a 50% chance of gaining $0.
Choice B: You have a 100% chance of gaining $500.

     2. You have $2,000 and you must pick one of the following choices:
Choice A: You have a 50% chance of losing $1,000, and 50% of losing $0.
Choice B: You have a 100% chance of losing $500.

The results of this study showed that an overwhelming majority of people chose "B" for question 1 and "A" for question 2. The implication is that people are willing to settle for a sure thing (even if they have a reasonable chance of earning more), but are willing to engage in risk-seeking behaviors where they can limit their losses. In other words, losses are weighted more heavily than an equivalent amount of gains. We have a loss aversion and the ratio is about 2 or 3:1.

What if I told you that you were more likely to become disabled than to pass away prior to 65.  At no age is the risk of death greater than being disabled. For life insurance, the major problem is getting individuals to assess how much coverage they need. For disability insurance, the major problem is getting individuals to assess any need at all.

4 to 1
3.5 to 1
2.7 to 1
2.1 to 1
1.8 to 1
1.5 to 1

A majority of American adults have no private, long-term disability insurance, to replace lost income.  The evidence for the risk is clear.  And going back to prospect theory, it would be natural to theorize that most people would want this risk addressed.  

Let’s consider why more private/personal disability insurance isn’t bought.  Since we know that people are loss averse, we also know that they are averse to paying premium.  Even though there is a great risk of loss in becoming disabled and not being able to earn income, the loss of the premium dollar is a sure thing…..Throw this idea into the mix though… What if they never had the money to begin with?  As in, if the premium is deducted from their paychecks.  If the money never reaches their bank accounts, the premium for disability becomes very palatable.

People Love Getting Money Back, Even If It Was Always Theirs In The First Place.
Think about tax refunds.  Tax refunds are returns of overpaid taxes at 0% interest.  This seems like a pretty sour deal, especially considering how much we complain about Money Market and CD Rates.  So why are people so much more happy to collect 0% interest on their money than to take what they would have overpaid in taxes and save it over the same period of time for a positive rate of return?  Maybe it’s because underpaid taxes carry a 3% interest rate, but I don’t think so.  

People Like Return Of Premium.
They like to see cash value in their Whole/Universal life policies, even if the insurance is only for death benefit.  They want to get something for their unused premiums, even if it’s only their own money back at 0% rate of return.

Let’s say you recently started a new job and were offered 2 disability options.  Both pay ⅔ of your salary if you are unable to work for more than 30 days, and for so long as you are disabled, up to age 65.

Policy A: Will reimburse you $1200 if you do not file a claim within 5 years.  It costs $90/mo.
Policy B: Has no refund.  It costs $70/mo.

The rebate policy was preferred by 57% of respondents.  The average odds of collecting disability payments and not receiving some or all the refund was 3.6%.  

So what this means is that out of 1000 people, 570 would choose to basically take out a 5 year annuity with a 100% penalty (if they change jobs or become disabled) for a 0% rate of return, instead of doing something else with the $20 per month.  WOW!

Availability Heuristic
The availability heuristic comes into play as well.   The Availability Heuristic and The Proclaimers  If a recent outcome was negative without regard to the odds a person will put more weight on that situation.  

If someone has had a family member or friend pass away or become disabled, they are more apt to see value in covering that risk even if their age, health, or financial situation is completely different.  I just had a client call to buy life insurance because a friend of his died piloting a small plane that crashed.  My new client is not a pilot himself.  He also happens to be someone I had approached 6 months earlier about adding more life insurance and he put it off.

Tennis great Jimmy Connors knew his own emotions and stated that “I hate to lose more than I love to win.”  As a consumer, this is built into our psyche.  Many financial decisions are ultimately based on emotion.  Taking a step back to fully assess the relevant details is key.  This is especially true on a risk management choice.  Force your emotional mind take a back seat to your practical mind long enough to make a smart decision.