Every profession requires you to have persuasive skills.
You have to persuade your boss to grant you a leave. You have to persuade our team member to agree to your line of thinking.
Your boss has to persuade you to work over the weekend. You may say your boss hasn’t really persuaded you to stay work over weekend. But he used his Authority to make you work.
You could have been defiant but your mind didn’t let you.
A few weeks back, I read Robert Cialdini’s Influence:The Psychology of Persuasion. In the book, the author talks about various factors that you make say Yes to the other person. And how a sales professional make use of such factors to make you do something he wants you to do.
He talks about many factors such as reciprocation, commitment and consistency, social proof, liking, authority and scarcity.
By the way, persuasion is not just limited to sale of a product. For instance, a politician, through his speeches or work, persuades you to vote for him. A NGO persuades you to volunteer for an event for free. Similarly, we use our persuasive skills to get things done all the time.
Persuasion is needed in relationships too
Even parents have to persuade kids to finish homework quickly. And kids persuade too. When my 6-year old niece asked me to go to the park, I had to say No because I was busy. She agreed but asked me to join her for Snakes and Ladders. I said Yes.
Because she made a Concession (by agreeing to not to go to the park). And I had to Reciprocate. A visit to a park and playing Snake and Ladder would have taken about the same time. But, I couldn’t say No since my niece had been so understanding. It was a reflex.
Kids are pure souls. My niece, perhaps, had only a priority list in her mind which she ran me through. She managed to persuade me to play Snake & Ladder by making a concession.
However, our tendency to reciprocate could be exploited by a sales professional to make a sale.
An insurance agent comes to meet you to sell you an insurance cum investment product.
He dons a business suit and is extremely polite. He patiently listens to you and ever interrupts you. Difficult not to Like him.
Agent:You love your kids, don’t you?
You: Who doesn’t? (You agree)
Agent: Are you investing for their education?
Agent: Where do you invest for their education?
You: I invest some amount through recurring deposits.
Agent: But recurring deposits won’t work if you are not around.
You: Yes (You agree)
Agent: Wouldn’t you want that your kids education does not suffer even if you are not around?
You: Of course yes (That is a Commitment)
Agent: We have a product that provides much better returns than a RD and in case you are not around, the insurance company will pay the premium on your behalf. By purchasing this, you will secure your kids’ future. Should I fill up the form for you?
You are trapped. You didn’t expect that the conversation will go this way. You are short of answers. You have not even gotten into merits and demerits of the product. How can you say Yes?
But you need to act Consistent. You can’t say No without a proper reason. After all, you can’t say that you don’t want to invest because you do not care for your kids’ future.
Or that you don’t like the product because the next question will be Why. You don’t have answer to that question either.
You don’t want to look inconsistent. Everyone wants to be consistent. A few moments ago you were so intently listening to and agreed with what the salesperson had to say.
Someone who has shown such courtesy and cared for your kids’ education, how do you say No to such a person? That is Reciprocity at work. You feel the need to reciprocate the favor the salesperson made to you.
Continuing with the above example, you managed to say NO to the insurance plan.
The sales agent politely accepts your decision and asks you if you could offer his some reference?
Big Request: Purchase an insurance plan.
Small Request: Give a few references
The agent has made the concession. You need to reciprocate.
After declining the request to purchase an insurance plan, this is the least you could have done. You provide a couple of friends’ reference.
Subsequently, the salesperson goes to your friend and mentions that you provided the reference. Your friend will think there must be something in this product for you to recommend his name for the product (social proof).
If your friend considers you a smart investor, there is Authority at play too.
Your friend may not be able to take an objective call since YOU recommended his name for the product.
If your friend purchases the product, the salesperson has essentially expended your goodwill (and not his) with your friend. Subsequently, if the product turns out bad, don’t be surprised if your friend blames you for it (openly or in the closet) and even talks to others about it.
And you thought it was an innocuous request for reference.
Therefore, be careful with your references.
Unless you feel that the product can actually help your friend, do not give a reference just to oblige the salesperson.
You are on a four lane highway. You reach an intersection and wait for the traffic signal to go green. Those are odd hours and there is little traffic. The cars behind you stop and wait just like you. However, the cars in the adjacent lane jump the signal and whiz past you because the one ahead of them didn’t stop.
Who knows, if the first driver has stopped, others would have stopped and waited too. For those who jumped, they had a social proof of jumping the signal. Social proof is such a powerful force that it made those drivers break law.
If everyone else is doing it, it must be right. That is one of the shortcuts we used for decision making. And it works too most of the times, but not always.
For instance, if everyone says Smoking is bad, it must be bad. You don’t have to smoke and get diagnosed with cancer before you figure out the smoking is bad. Or go all the available research to conclude the smoking can cause cancer.
However, social proof can lead you to poor decisions too.
How many of us started investing in stocks or mutual funds because EVERYONE else was investing and making money? You can also call it herd mentality. This is also one of the reasons retail investors struggle to make money in the market.
They don’t invest when the markets are low because no one else is investing.
They invest when the markets have risen sharply because everyone else is investing and making money.
Here is a how a sales professional can use this.
“Sir, Your colleague (or neighbor or even boss) Amit also purchased this.”
There is a social proof. Your colleague has already purchased it. There must be something in this product. The more people in your group purchase the product, stronger is the proof.
How many times have we fallen for limited period offers? I have seen many stores that have SALE sign 365 days a year. You wouldn’t perhaps go in such stores. But if you see, the sale is only till Diwali or till the new year, you may reconsider your decision.
How many times have you been told that, “Madam, this is the last piece available”. And you ended up purchasing the item.
There is something in us that wants things that are scarce. This is the reason why rare antique or artworks go for millions in auctions.
Sellers know this.
Therefore, such offers are merely to make those products look attractive to you.
If something was available for Rs 1,000 but is available for Rs 700 for the next 30 minutes, the product will suddenly look more attractive. Even if I felt that the product is only worth Rs 500, the discount of Rs 300 is too difficult to resist. This happens to me when I am shopping on Amazon.
Moreover, we need time to think rationally and reach a decision. The limited period offers/ scarcity take away that time to think rationally.
And what about “Sir, this product is being offered only to our select customers.”?
I am sure you have been told this many times. They are merely playing with your minds.
LIC routinely does this. It comes out with plans in January of every year that are available only till March 31. Has LIC suddenly found investment avenues that will not be there after March 31?
Is this product better than the products that are available the year round? Clearly, no.
But the insurance company and the sales agents know about customer psychology. They know that scarcity will make you want the product more.
In case of financial products, follow a simple rule. Do NOT buy what is scarce.
If a financial product will not be available after March 31, there is no need to get into it. Do not purchase limited offer financial products.
Do NOT buy what is scarce.
Do NOT purchase a financial product on the day of sales pitch. Wait for a few days before you make your choice.
Remove the seller from the product.
Sales profession is not bad. No business can run unless it can sell its products. Sales professionals help in conveying the features of the products to the end customers.
However, such professionals have sales targets or incentives linked to the quantum of sales. Such incentives may accidentally or deliberately push the salesperson to ignore your interest.
However, that does not mean you purchase whatever is sold.
Influence:The Psychology of Persuasion gives good examples of how to say No. The underlying theme behind saying No is that you MUST know what is going on.
Awareness is paramount.
If you realize what is going on, you can appreciate the trap much better.
Rolf Dobelli writes in The Art of Thinking Clearly,
“If you are a consumer, always judge a product independent of who is selling it. Banish the salespeople from your mind, or rather pretend, you don’t like them”
Therefore, remove the seller from the purchase decision.
Once you realize that you have been subject to a well-rehearsed strategy, you will not feel so bad in declining the salesperson.
Moreover, if you know that the salesperson has no qualms in asking you to purchase a bad product, you wouldn’t have any apprehensions in saying NO.
Domain knowledge is important.
If you do not know anything about investments, you are a sitting duck. You may still manage to say NO every time you find yourself in a sales situation. However, you need to say Yes at some point of time.
In absence of such knowledge, you wouldn’t know when to say Yes.
It may not be a bad idea to seek help.
For instance, I have absolutely no about different kinds of fabric and their costs. Therefore, when I go to select fabric for a shirt, trouser or a business suit, I am ripe for slaughter by the salesmen. Even if he sells me Rs 1,000/metre fabric for Rs 5,000/metre, I wouldn’t be able to notice.
To overcome this problem, I ask a friend or a family member to join me to the shop and help me in making a decision and bargaining with the salesperson.
You can do that too. You can ask a friend and family member to help you understand the product. That person shouldn’t have any incentive in your purchasing the product.
If you do not know anyone who can help, seek professional assistance. Cost of a poor financial product is much higher than cost of professional investment advice.
To avoid conflict of interest, go to an adviser who does not sell products and merely offers and charges for advice. You can contact a SEBI Registered Investment Adviser.
I am a SEBI registered Investment Adviser and may have vested interest in asking you to seek services of SEBI RIA.