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out randomly and everyone was told they could freely swap , only 10 % of the people with chocolate chose mugs . If they were acting rationally , you would have expected 56 % of those with chocolate to choose mugs .
This loss aversion - “ I already have a bar of chocolate , so I don ’ t want to lose it , even though I would have preferred a mug ” - can roll over into our business behaviour . Having a tool stolen can hurt more than an unexpected profit of the same value . Gaining a new and better client doesn ’ t feel like it offsets the loss of an existing one of the same value . These are subtle effects but anything that impacts business decisions in an irrational way means we make worse decisions .
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Valuing things
When it comes to staff rewards , there can be some strange outcomes . Suppose that you give a member of staff a £ 30 bonus . That doesn ’ t seem like much , does it ? I doubt the receiving person will be that fussed .
What about if it was a meal out with their wife or partner ? That might cost the same , but it can have a much higher perceived value . And the partner may now be your biggest fan , helping their other half to overlook your idiosyncrasies . Thinking about non-monetary rewards can be a great help in motivating staff . This principle can also extend to customers . Doing something small for free can have a disproportionately big impact .
I once had a fault with my car . The garage tried to find it and couldn ’ t . Then I put it in again and
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they still couldn ’ t find it . Finally , on the third occasion they managed to track it down . They said that because they hadn ’ t previously sorted it out , they wouldn ’ t charge for fixing it . I don ’ t think it cost them much , but it produced huge loyalty and trust from me . I even stuck with the brand and bought a car from them so that I could get it serviced there .
Expectations
You may remember from many adverts that financial promotions always end up by saying something like : “ your investments can go down as well as up and past history is no guarantee of future success ”. The law forces financial companies to give the warning because we humans almost entirely ignore this truth .
Past performance almost entirely sets our expectations about the
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future , and this affects a much wider field than just finance . If we get a 10 % rise one year , a 10 % the next , then we expect our next rise to be 10 %. If we get 5 % we are disappointed . That is even if this is generous , way ahead of inflation and on top of an already generous salary .
Often a customer has an amount that a job will cost in their mind . If we charge them much more , they are disappointed and possibly angry . That ’ s even though their expectations might have been totally unrealistic . It ’ s the way we are wired .
This has big implications on how we sell to customers but also how we treat staff . We not only have to have an eye on how people react to what we say now . We need an eye on the future too .
Emphasising what great value we give when we meet the customer
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the first time might help with that initial encounter . But it will also guarantee we won ’ t get the business if we are not the cheapest quote . And telling people we pay top dollar may help when we recruit them , but they will be disappointed if their review isn ’ t great . In other words , saying what is easiest now has consequences down the road .
Setting expectations correctly is quite difficult . But it has a big pay-off in avoiding issues .
Loss aversion
This is maybe the weirdest of all the inconvenient truths .
An experiment was conducted where people were asked to choose between two gifts – a mug or a bar of chocolate . 56 % of people chose the mug , so it was the most popular . But when mugs and chocolate were handed
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Confirmation bias
This is one of the strangest of human traits . Say we commit ourselves to a belief or a course of action . After we do , we tend not to believe any evidence that contradicts what we think . We just want to hear facts which confirm us in what we have already decided .
It ’ s why people who buy shares on the stock market often cling on to them all the way down the toilet .
So , when we hire someone , most people take a long time to decide they made a mistake . If we settle for a certain type of van , we don ’ t want to hear that we could have leased it much cheaper elsewhere .
Of course , we ’ re not always wrong and even when we are , we may not be able to correct the mistake immediately . However , when it is correctable , the quicker we do it the better .
This is a difficult bias to overcome but being aware of it is the first step .
In conclusion
Inconvenient truths are ones that you don ’ t want to hear but are important . Facing up to reality is always challenging in any setting . It ’ s especially important in business where there are nearly always financial consequences when we avoid the truth .
I hope that there ’ s some food for thought here and I really wish that at least you find it interesting and at best it helps your installation business .
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