Relativity. It’s how we figure out the value of things. You see, humans rarely have a clue about the intrinsic value of something. We find making decisions based on absolute value difficult because we struggle to determine that absolute value. So instead we use relativity. We see a “SALE” sign in a shop window, wander in and over to a sweater with its current price in addition to it’s more expensive past price showing - so we come to the conclusion that we are being presented with a good deal. On its own though, who’s to say?
This doesn’t mean that relativity is always the right tool for figuring out how much to value things – it can lead us down the wrong path sometimes. But it does enable us to make quick decisions under difficult circumstances.
Let’s take an example of this that you are probably familiar with. The food industry has used our concept of relativity to drive behaviour for a long time. Let's say you sit down at a steak restaurant and you see three steaks on offer – one at £19, one at £24 and one at £40. What do you go for? Most people choose the £24 option, which also happens to be the most profitable choice. The existence of the higher £40 option is almost definitely there to drive you towards the £24 choice. You can’t really tell the value of each steak in isolation, but when all three are presented together, the £24 option looks like the best value.
A more famous (and tested example) was when it was used by The Economist and then subsequently tested by behavioural economist Dan Ariely.
Dan noticed that, at the time, The Economist offered three options for users to subscribe to its content:
Puzzled by this, he decided to test it experimentally. He ran two experiments (you can see an excerpt from one of his talks on this very experiment here). In one, he offered subjects the following choice:
The result? 68% went for online only and 32% went for the print & online option. Not too shabby for The Economist.
In the second experiment that introduced the additional “print only” option and offered that to his subjects. Let’s look at that again:
How much do you think introducing the print only option shifted the results? In a world of perfectly rational, economists, it probably wouldn’t make any substantial difference. In a world inhabited by human beings however, this happened:
The introduction of a print only option, at the same price as “print & online”, led to a substantial change in people's preferences (and presumably a significant bump in revenue for The Economist). Why? Well, it looks great, relative to the other options available! Humans have a poor understanding of what a commodity is worth – judging value is difficult in isolation and so it is very difficult for most people to judge what a subscription to The Economist is really worth. In the first scenario, both prices were far enough apart that it was difficult to judge the value. In the second scenario, options two and three were easy to compare and so most people went with print & online – in essence you are getting online “free”.
If you think of the two “attributes” in play here, they are:
In the first scenario, the two options had been difficult to compare. This highly complex and yet visually stunning graph might help display this difficulty:
In the second scenario, options b and c were easier to compare. This supplementary complex graph might help to display this:
You might even call option c “a slightly worse version of option b”.
This result has been played out time and time again. Faced with two options with difficult to compare attributes (A and B), humans struggle or play it safe. Faced with three options, A, B and B’ (where B’ is an ever so slightly worse version of B), B wins comfortably. From real estate to dating, this works (potential cautionary tale – next time your ever so slightly more attractive friend asks you to be his/her "wingman", have a think about why).
There are important implications here for business. Gallup, for example, found that companies that apply principles such as this (amongst wider behavioural economics concepts) outperform their peers 85% in sales growth and more than 25% in gross margin. This is absolutely in line with my experience in a sales setting – particularly when focusing on presenting information to potential clients (i.e. your sales pitch).
So how can you use this information to your benefit? Ultimately it comes down to a three-step process that you need to think about when presenting information:
This should be considered at all times - take a look at every aspect of what you are presenting and think about this process. Here are some key areas to think about:
A price on its own is a difficult attribute for your buyer to judge. However, one price relative to other prices is easier. This might be relative to the market or amongst a range of potential purchasing options. Driving buying decisions towards a package that is most beneficial for you is made easier by loading value into that offer (good for the client) AND presenting a similar package at a similar price that doesn’t contain as much value (as The Economist did). Remember the key here is enabling a straightforward comparison between options with similar attributes.
Saying your product supports or offers X or Y doesn’t mean much on its own – but relative something else (industry standards, expectations, competition) it begins to make sense. Saying “our average monthly availability = 99.99%” is nowhere near as effective (or helpful) as “our average monthly availability is 99.99% where the industry average is 99.9%” and so on. Bonus points if you also describe these figures into something more meaningful like real time.
Innovation is great, but when presenting a product remember that humans look for easy comparisons. In a choice between option A, option B and option B' (where B' is a slightly worse version of B), the easiest choice is for the buyer to go with option B because option A does not have easily comparable attributes. So rather than presenting yourself as something completely new, try presenting yourself as a great improvement in an existing market of products - especially when you are up against competition.
As with the service example earlier, this is an easy one to think about. Don't give random details on experience (average tenure for example) in isolation, as it makes no sense. Relative to something else (let’s say, industry average) is better.
Many proposals include two models: Self-service and Managed. Unless the client already has a clear idea of what they want (in which case, ask yourself if you should be presenting both anyway), it may be difficult for them to make the right choice. If you feel that the managed service model offers them the best value, you might want to enable an easier comparison by including a third model - managed service "light".
The truth is we make decisions based on making comparisons – both in terms of price and in terms of preference. The relevance here is that, in a pitch setting (and in life more generally), we need to remember this fact. If you are pitching a deal, relativity should be used to your benefit, and to the clients, by enabling these comparisons.
People love a good deal - let them find one.
If you're interested in understanding how concepts such as relativity can dramatically improve your pitch, connect with us.