The Surprising Power of Loss Aversion in Sales

Making thousands of cold-calls and taking part in hundreds of demos over the short time I’ve been in sales has taught me many surprising lessons about buyer psychology—at first I thought I was competing with other vendors in the market when pitching my solution.

After some disappointing rejections of potential clients I really believed I could help, I had to do some re-evaluating. Was I missing something? I was so sure, we were better than the other vendors. Why not us? After some head-scratching and introspection, I realized there was one competitor I was missing--potential clients not doing anything at all and continuing following the status quo.

When people have a problem, they either choose you, a vendor or to do nothing about it. If not solving the problem doesn’t have an existential consequence to the business, then why make the purchasing decision in the first place? This is how a lot of my prospects tend to think, when I first talk to them.

A look into buyer psychology tells us that we buy overwhelmingly for emotional reasons, not rational ones. Two key emotions involved in buying are desire for gain and loss aversion. What do I mean by loss aversion? It’s the cost of inaction, the cost of not buying your product.

Research published by Econometrica, a journal of the Econometric Society, demonstrated that loss aversion can make people much more open to taking risks when making decisions – if those decisions are motivated by their desire to avoid a loss of any kind.

As stated in David Hoffeld Selling more with Science:

Every buying decision contains risk, so this is of course incredibly relevant to sales. Buyers won’t know if purchasing a product or service is right for them until after they experience the results for their decision, and everyone has experienced making a purchase they later regretted.

Yet, in spite of the risk inherent in the buying decision, your potential clients need your product or service. Your job is to help them navigate that risk, understand what they will be losing by not purchasing it (as well as what they stand to gain by purchasing), and make a confident choice they’ll feel good about.

So how does this translate into you selling more effectively?

If you sense that the prospect is overly hesitant, but you know that your solution can truly solve the problem, then you can show the prospect the consequence of not solving the problem with you. I find it helpful to not overtly tell the prospect what the costs are, but to use questions to guide them through this train of thought. What might be the cost of not solving for “desired outcome” at all? Have you done the numbers of what financial impact “problem prospect has” on your bottom line? What happens in 3 months if you haven't alleviated said problem?

Questions like these might seem uncomfortable, but so is the problem you are solving for. I’m still learning to challenge, to explore both the benefits and the problems that arise when not doing anything at all. I have found that my conversations are a lot more helpful to both sides when I don’t shy away from these topics.

Found this helpful? Feel free to share it with any ambitious sales friends.