This week, Templar’s Niels Jensen delves into loss aversion and how you can achieve success in critical interactions by identifying and prioritising your customer’s pain points.
Niels has been located in Hong Kong since 2011 and runs Templar Advisors (Asia) working with clients in investment banking, global markets, law, wealth and asset management and private equity.
The CEO of a large international corporation was asked, “How do you select your professional advisors: lawyers, bankers, auditors etc? Is it their track record, industry expertise, technical know-how, product innovation?”
The response was telling.
“I take all that as a given. In a world where products and analyses are commoditised, I look for something more. So don’t waste my time. Interactions from advisors have to be properly interesting.
Can they sprinkle some gold dust on my day and tell me something I don’t know? When they leave the room, will I turn to my CFO and ask ‘now what if they’re right?’”
The CEO was inadvertently referencing Fear Factor or Loss Aversion – where the two dominant motives for the buyers of advisory services are the prospect of gain and the fear of loss.
The advisors referred by the CEO often use the wrong tactic when trying to persuade a client to pursue a particular course of action or buy a product or service. Why is that?
Amos Tversky and Daniel Kahneman, two revolutionary Israeli psychologists, totally changed the thinking in the 1970s around how people make decisions involving risk. Their intellectual collaboration was universally dubbed ‘”the intellectual bromance of the 20th century” – a formidable intellectual kinship that invented “behavioural economics” and established cognitive rules for human irrationality.
They challenged the widely held assumption that people are rational and tend to act in their own economic interest. Tversky and Kahneman discovered that investors and buyers frequently ignore logic and are willing to run greater risks to avoid losses than they are to make gains.
In other words, fear is everywhere when it comes to business. So what should one do in those critical client interactions to “sprinkle some gold dust” on sceptical clients.
What are the pain points?
It’s imperative to know and understand the other person’s fears.
- So we must begin by researching the client’s pain points.
- Identify sources of client uncertainty.
- Address a substantive business issue.
- Identify market forces and competitors, trends in their industry.
- But hold back with your own credentials.
The experience of the team, your success stories / league table rankings etc – can all come later. Put the customer’s issues first, foremost and upfront.
Prioritise those fears and ask the right questions
How do we uncover those pain points?
- By asking the right questions. Demonstrate that you understand the client’s business context.
- Assess the environment they’re operating.
- Demonstrate that you understand the client’s current strategic and tactical environment.
Next, show that you appreciate the challenges the client faces. Make implied issues explicit for the client by asking those crucial challenge questions. What difficulties does the client face?
Third, what are the consequences? Peel back the problem, like an onion, layer by layer. It may take time to do this. Clients won’t always reveal their hand at the first attempt. Trust has to be earned. The aim is to establish what the likely impact of the problem is. What are the outcomes of either resolution / irresolution of these challenges.
And finally, what are the conclusions that need to be reached? What does the client conclude in terms of their requirements?
Motivating and understanding loss aversion and fear is knowing not only the pain points, but also how to prioritise them. Which problems are most relevant and urgent for the client – what do we need to deal with first?
In getting them to reveal this, you may well sprinkle that gold dust on their day and if they turn to their colleagues once you’ve left the room ask, “now what if there’re right?” – perhaps they will be willing to run greater risks to avoid losses in their businesses. And to turn to you and your company to help them to do it.