Imagine you’re a wealthy investor. You get a phone call at four AM from your financial advisor. He informs you that there’s this great investment opportunity that would allow you to make $50,000. While your financial advisor thinks you might be thrilled to learn about this investment opportunity you’re not. You gruffly reply, bug off and let me sleep!
Now imagine the same 4 AM phone call but this time the investment opportunity is presented differently. Your financial advisor informs you that if you don’t get involved in this investment you stand to lose up to $50,000. Rather than brushing him off, you sit up in bed and ask him to tell you more.
Why the different response? It’s an aspect of behavioral economics known as loss aversion. Daniel Kahneman published a theory back in 1979 called Prospect Theory. Kahneman’s proposal suggested that loss was more motivating than gain.
In other words, people hate to lose more than they love to win.
How can you use this knowledge to help your business? By making sure your customers or clients understand what they stand to lose by not doing business with you. (Note this is a little bit like salt too much and you ruin a good thing.)
When you share with your clients or your customers what they may lose by not doing business with you, don’t overdo it. Keep it simple. What you really want to play up is what they stand to gain. Now that might sound a little counterintuitive based on what you just learned but it’s not. The reason it isn’t is that a little bit about loss goes a long way.
If there is no fear of losing, there is no motivation to change. Too much fear of loss and people tend to just block it out and still don’t change. So you encourage by focusing just a little on what they can lose. Then talk plenty about what they stand to gain by doing business with you.
If you fail to let your customers know what they stand to lose by not doing business with you, you could be losing business. Are you clearly articulating what your customers or clients stand to lose if they pass on your service or product?
Take some time today to write out what people stand to lose if they don’t do business with you. And make sure you’re helping them understand what doing business with you will mean for them.