John Tyreman 0:19

Hello, business development professionals and welcome to another episode of Breaking Biz Dev. I'm John, he's Mark, and we are here to talk about cognitive biases. Mark, how are you doing today?

Mark Wainwright 0:32

I'm well. Good to see you. Thanks everyone for joining us. Yes, we're going to dig a little bit deeper into how our brains function. And this is one of those things that, you know, when John, when I was, uh, business development professional in a professional services firm. I had no idea about this stuff. I didn't pay any attention to it. There wasn't anything in, the typical sort of training conversations and any of that, I had to really embrace sales and really start digging into the different aspects of selling in order to really come across what You know, this whole cognitive bias thing. And it is fascinating.

John Tyreman 1:17

Well, it's a, it, what's funny is it's a foundational element of both marketing and sales, and it's oftentimes overlooked or, not understood. And so I think this is a great subject for us to break down and break apart and put it back together in ways that people can use constructively.

Mark Wainwright 1:35

part of the point I was trying to make there is that there is a little, there's a little beating up here as well, John, because, I think that business development professionals who are unaware of this are underserved by just about every little nugget of knowledge that's out there in the business development world. This is really important stuff. And really you only find this if you go looking for, Hey, what is sales all about? What is marketing? Like what's going on in people's brains? How do people buy, this is, behavioral psychology. This is behavioral economics. this is that sort of stuff. And, it is so impactful. And I'll tell you, I've just started learning more and more about it the last few years or so. And it has really kind of turbo charged sort of the work that I do with organizations. Because as soon as we start talking about this and leveraging some of these things, it's super powerful.

John Tyreman 2:29

It is the first, seven years of my career. I spent, studying under an organizational psychologist, Dr. Lee Fredrickson over at hinge marketing. And, yeah, I was introduced to some of these concepts early on, but I didn't quite fully understand their implications in the marketing and sales, worlds. And so, yeah, over the last few years, I've started to really kind of connect some dots in my own mind, and it's just fascinating some of these things that we just take for granted. Today in all of the little decisions that we make are impacted by our experiences and predispositions and our own biases.

Mark Wainwright 3:05

Right. Exactly. Exactly. So, so like I mentioned, we've talked about cognitive bias in a previous episode. There are actually a number of other podcasts and resources out there, who dig much deeper into, cognitive bias and heuristics and things like that. so I would encourage anyone that, has a little bit, level of interest in this to go and seek those things out. We may list a few resources at some point in this podcast or provide some in some show notes, et cetera. Really what we're talking about here. So cognitive bias is the way that our brains, make decisions and cognitive biases. Force us to, to make these mental shortcuts when we're making decisions. And oftentimes we, we find ourselves in a place where our brain isn't necessarily being logical, rational, et cetera, because we are using these mental shortcuts called heuristics to Make decisions. And sometimes it leads us down the right path and other times it does not. So cognitive bias is the way that we kind of engage in a decision making process. And lo and behold, these little irrational, illogical sort of, shortcuts kind of show up in our head. So that's kind of what we're, that's what we're talking about.

John Tyreman 4:18

Yeah. And we are going to first list out some examples, right, of some different cognitive biases that are common, in both ap applying them to marketing and sales. And then we're going to break them apart a little bit. We're gonna show how we can use each of these cognitive biases in a constructive way, in a good way. We're not trying to trick. People, we're trying to, enable good decision making is what we're trying to do,

Mark Wainwright 4:44

right? And I think that's, ultimately, I think john, you and I are of like mind with that is, is that, none of this is designed to, to be used in a nefarious way where, you're looking to one up, one of your customers or clients or prospects or many of that stuff, what we're looking. What we're looking to achieve here is to give people the tools that they can use to help their prospective clients, current clients make good decisions, right? and without them even knowing it, they might be making poor decisions because of these various factors. Biases that they have, embedded deep in their brain. So, all right. So I think we've come up with seven. There are literally dozens, maybe even hundreds of different cognitive biases, heuristics. Again, those are those little mental shortcuts. Our brains use, that are listed on a number of, of resources, tons and tons, like decades of research on this. It's fantastic stuff. We've pulled together seven and we're going to list out the seven. Kind of go back and forth a little bit, and then we want to dig into each one individually.

John Tyreman 5:49

Let's do it. Let's dive in.

Mark Wainwright 5:50

Great. So the first one that I came up with is anchoring. The anchoring bias is a cognitive bias that causes us to rely heavily on the first piece of information we are given, right? So our brains grab a hold of it. That is anchoring. Anchoring. What's your second one? Well, the next one on our list is the messenger effect. And who delivers a message is just as, and perhaps even more so important than the message itself. Yeah. Yeah. Good, good. So the next one that I have is loss aversion. This is a cognitive bias that describes why, the pain of losing Something is psychologically twice as powerful as the pleasure of gaining something, right? So the example that people use all the time is it's better not to lose 20, out of your pocket as you're walking down the sidewalk than it is to come across a nice 20 bill on the sidewalk. Trust me, finding 20 bucks on the sidewalk is lovely. But losing that 20 out of your pocket, painful, right? Hurts at 20 goes a long

John Tyreman 6:58

way.

Mark Wainwright 6:58

Yeah.

John Tyreman 7:00

Maybe not today as much as it did a few years ago, but anyways, I digress. the next one on my list is social proof and social proof is this psychological phenomenon that happens where people look to others to help them make better decision making. or they look to others so that they can adopt the right behavior. so this is common throughout marketing. I'm sure that you can think of a few examples and we'll dive into them as well. but yeah, social proof is the next one for me.

Mark Wainwright 7:29

Good. Great one. The next one I have is the decoy effect. The decoy effect is when we are choosing between two alternatives, the addition of a third alternative, maybe a less attractive, option suddenly influences our decision making and our regard or perception of those first two options that we are considering. Interesting. The decoy effect. I like that one.

John Tyreman 7:59

And we talked about that a little bit when we, we're talking about choice architecture and how to structure your proposals. So go back and listen to that episode. And then, we'll dig a little bit deeper into, the decoy effect on this one.

Mark Wainwright 8:12

All right.

John Tyreman 8:13

My last cognitive bias that I have on my list is the pain of paying. And so each time that you spend money, your hard earned money, all of those dollars that you work so hard for, you feel a sweat, a slight twinge of pain every time that you have to pay. and while your business may be making payments. If, if you were in a buying position or if you're talking with a buyer, their company may be making those payments. Still that cognitive bias can play into their decision making, impacting their own decisions for selecting a professional service.

Mark Wainwright 8:50

Yeah. Yeah. It makes total sense. It makes total sense. Every time I have to pay those thousands of dollars for. Playing tickets to somewhere, a little bit of pain, a little bit of pain. All right. So what's your last one, Mark? Last one I have is the optimism bias. And this refers to our tendency to overestimate our likelihood of experiencing positive events, being successful, et cetera, and underestimating the likelihood of experiencing negative events of failing. Right. So this is a big one. Right. And this impacts all kinds of stuff. So there's our seven. And like we said, people are thinking about these and they're thinking, Oh man, we're going to use these to trick our customers and prospects and clients. That is not what we're talking about here. Now, I think these can be used in nefarious ways. But, since we're talking about professional services and you are, your organization and your goal is to serve your customers, then they need to be used in a beneficial way, right. To create a win situation to help customers make decision, make the right decisions. And the reason decision, I come back to decision making a whole lot because professional services is really complex. coming to, engaging with a consultant, an architect, an engineer, a marketing agency, whatever else, there's so many layers of complexity and in those types of engagements that the prospective clients have a tough time making decisions. they have a tough time choosing. So we can turn to these cognitive biases, be aware of them and use them to help our prospective clients make better decisions.

John Tyreman 10:34

So let's look at how we can use these cognitive biases for good, right? With great power comes great responsibility. I'm quoting Spider Man, but, uh, let's, let's use it here. Let's dive in.

Mark Wainwright 10:46

good. So, so we'll go back to the list, right? Anchoring is the first one that I mentioned, Anchoring again is that, people tend to put way too much weight or too much importance on that very first piece of information that they come across. And anchoring happens with pricing, pricing is a big deal in sales, right? So when we present high, Anchors early on in the conversations that we have provides a big picture perspective and opens people up to the intricacies and complexities of, what needs to be done in order to help them achieve what they want to achieve. Right now, this is a little bit counterintuitive because I think most professional services firms are hesitant to put forward these really Big sort of high anchors initially, right? They're like, Oh, we want to bid low and then we're going to, add stuff on or walk the price up over time. Right. We'll start with 10, 000 and then lo and behold, six months from now we're like, Oh, you know, we found out some new things about this. It's going to be 25 whatever. Right. But I think that anchoring high initially does two really critical things. Like I said, It gives them a big picture. They say, Whoa, this is actually a big deal, right? This is, it's complex. There's a lot going on here. This is a really big deal. Plus, when you then come back around and said, you know what? We've actually be. dug into this a little bit and we've understood your needs a little bit more. I'm the consultant talking now, right? I get what you really are trying to achieve here. It's actually going to be a little bit less than that. Here's the number. They say, Oh wow, that's awesome. That's a deal. Right. So I think it, it's, anchoring high helps, maybe later on the conversation when you come in and say, you know what, actually, we're only about 75 percent of that original sort of number that I talked about. People are really excited about that. And they think they're, maybe they're getting a deal, but maybe they just think, oh, this is fantastic. They're not gonna, keep nudging the price up, over time. So, yeah. Yeah. that's anchoring. That's how I think you can use anchoring and specifically high anchoring to sort of help, kind of advance the cause of both you and your prospective clients.

John Tyreman 13:03

I'm imagining walking into Best Buy or Walmart or Target. and seeing those flat screen TVs was 9 99 now. 5 99. Yeah. I guess they're anchoring with the, what the price was. obviously it's completely different. We're talking about professional services versus consumer products, but, I think the cognitive bias is still kind of, is a similar application.

Mark Wainwright 13:26

John, I would back that up and say it is the same darn thing. It is. This is this. It is. It's this kind of anchoring concept happens, in a, a purchase you make at the local grocery store in a couple of seconds. It happens in a very complex. professional services, purchasing situations. So, the dollars and cents are different, but I'll tell you, our brains are operating the exact same way. well, I

John Tyreman 13:51

think that's the point we're trying to make is that whether it's, you're buying a TV or buying architecture services, the, these, the same cognitive biases play a role. Yeah. So, Alright, the first one on my list that I mentioned before was the messenger effect, and this is who delivers a message is just as important as the message itself. So, think about this, a teacher comes up to you and says, An apple a day keeps the doctor away. Okay, thanks teach. Um, and then you go to the doctor, then the doctor tells you, an apple a day keeps the doctor away. So the message coming from the doctor is much more impactful than the message that same message coming from a teacher So I think how we apply this to professional services I think this is why first of all personal branding is so important Your marketing messages coming from your brand accounts on social or your brand on email or whatever other channel versus That same message coming from a partner at your firm or a principal at your firm, makes a huge difference. another application could be influencer marketing. working with other thought leaders, co presenting in a webinar with someone who serves your same audience. And so if you get this, the same message coming from other influencers in the marketplace, that can also have an impact. Thanks. So these are just a couple examples of how you can take advantage of the messenger effect.

Mark Wainwright 15:18

individuals have these kind of assumptions, even before maybe they've dug into your content or whatever else. It's just, there's, they just, where is this message coming from? What is the level of authority, of that individual? And they will, kind of rank it accordingly. Oh, this is someone who has a high level of, authority in this particular area. Great. I'm going to, kind of, add more credence to their message. I love it.

John Tyreman 15:41

let's dig into loss aversion.

Mark Wainwright 15:43

Yeah. Loss aversion. We get this all the time. And I think this is this, of a lot of all the cognitive biases that I have kind of come across sort of historically, this one is super common. And when I look at loss aversion, I look at. I look at it from a pricing perspective and specifically a pricing and options perspective. And I talk a lot about this. We've talked about pricing and options previously. loss aversion comes around specifically when you are pricing your professional services and when you are offering multiple options, ideally three options. When you put together your pricing, when you show not just what the price is, A prospective client gets with a certain price and option, but what they don't get, you are leveraging loss or version. Now, the funny thing about loss aversion is, people, this sense of loss wells up in someone, even though they've never even had the thing in the first place, right? They're not actually losing it. Right? So what we're like, imagine they've got these three options. out in front of someone, maybe on one of those nice little tables that option one is this really stripped down minimal version. Option two is a modest version. And then option three, has everything in the kitchen sink kind of included in it, right? So someone will scan those and say, Oh, I can't take the first option because I'm losing all those things that are really important to me. So that's why this one is so interesting. And, yeah. I use it all the time and I know John, you have mentioned a little bit that you've, used or seen loss aversion applied in a marketing perspective as well.

John Tyreman 17:30

I'll tell you what, Mark, you've been talking about this for the last few months that we've been recording these podcasts and I've been applying what I've learned from you. And it's definitely making an impact. And I like to think about it as good, better, best. Those three different kinds of options.

Mark Wainwright 17:46

Yeah.

John Tyreman 17:47

maybe there's some psychology behind kind of naming them that way. Yeah. But, yeah, no, that's great. I love the three options and loss aversion.

Mark Wainwright 17:55

Good. All right. You've got a second one. Social proof.

John Tyreman 17:58

Social proof. Yeah. So, I think this one should be fairly easy and straightforward for our listeners to kind of wrap their heads around. so social proof is this, psychological phenomenon that happens where you're looking to others to kind of validate the decision that you are faced with. And so what I mean by that is like. You're on a website for a professional service provider and you see case studies, you see testimonials, maybe there is a podcast episode that has a sit down with one of their clients and you get to actually hear what the working relationship is like. so those are examples of so how you can use social proof in your marketing. And I would say that the bigger the transaction, the more social proof impacts the buying decision. So, let's use our TV, example. So going and buying a 500 TV. Is different than going and buying a 50, 000, consulting service. Right. So, on one hand, you may ask a couple of friends, you know, do you have this TV? Well, on the other hand, you're going to be doing a little bit more due diligence and looking at, okay, what kind of companies did this consultant work with in the past? maybe I'll go out and call a couple of their references. So those are kind of a couple examples of how social proof can apply to professional services marketing.

Mark Wainwright 19:28

Right. It makes total sense. and I think the little hook there, because it's completely logical and rational that aspect of social proof is totally, rational. I think where this whole irrational cognitive bias comes in on that one is that the social proof, the friends who know friends, someone who's experienced the work with a particular consultant, whatever social proof comes up, that social proof has an outsized impact on the decision making process, right? It's, you would think that both, if you are facing a couple options, maybe two consultants to work with that. Your decision making and comparisons will be based on sort of logical criteria, et cetera. But then social proof comes in and just You know, tips, the scales, right? Yeah.

John Tyreman 20:14

let's dig into the decoy effect, Mark. I believe that was your next one.

Mark Wainwright 20:19

Yeah. The decoy effects. so here's the scenario, right? If you give, and again, sales, this is, we're talking about a lot of times we're talking about pricing and options, et cetera. If one is presented one option, effectively a take it or leave it option decision making slows down. Right. Because now they're like, Do I make this choice or do I not make this choice? Do I have to go elsewhere to find something to compare it to, et cetera. So one option can be really problematic with decision making two options. People start to see some context. Okay. Here's a lower option. Here's a higher option. Here's some of the different things that, that, are incorporated or not incorporated into those two options. Okay, great. This is going to help them make a more informed decision. If you add in a decoy option, which Let's say for this example is your third option. Maybe it's a high option the introduction of that third option Maybe it's completely kind of out of the ballpark. It's we've got two options We've got a sort of a light medium option and then we've got this super ultimate option, whatever it is, that's three, four or five times the price of, the other options that has an outsized impact on their consideration of the two other options. And it does a couple things. It makes those two other options seem way more reasonable. It's, it steers their attention back towards those two options in a way that says, well, that option is completely absurd. These two options are definitely, more, understandable, acceptable. Et cetera. Right. So it's, it, you would think that one would be considering all these different options on their own merits independently, but they are not decoy option has an outsized influence on the two others. Right? So if you are thinking, Oh, we're just going to present two options to someone with pricing, I would recommend that you put together a decoy option. let's provide some additional context and let's people say, Oh wow, that decoy options way out there, but these others are, more reasonable. So that's the decoy option.

John Tyreman 22:33

Hey Mark, how do you sell a thousand dollar watch?

Mark Wainwright 22:36

Yeah. You sell a 10, 000 watch right next to it.

John Tyreman 22:38

That's exactly right. Yep. You can learn something from Rolex again. these cognitive biases are, applicable across industries, across different business models. so love the decoy effect. I think that's a great example. Yeah. the next one that I have, the pain of paying. so each time you spend some of your hard earned money, you feel a slight twinge of pain. And I think that You'll need to understand your counterpart, your buying counterpart and what kind of pain they experience when they pay. and what I mean by that is, do they want to, do they want to avoid making monthly payments just because that's just a hassle? that's one example of the pain of paying. Another pain of paying is someone might not want to pay everything up front because they just simply made it. Maybe they don't have the cash and it's a cashflow issue. So there's different kinds of pains of paying and it's your job as a salesperson to understand that so that you can construct an offering or a billing scenario that, makes sense for their situation,

Mark Wainwright 23:42

right? great point. and what that says to me is that, when you're going through the little detail is stuff in your contracts, your terms, et cetera, that they need to be relative to each other. Each, prospective client, each client, right? You can't just take the same exact terms and just overlay them on everybody because everybody's situation is a little bit differently. Everybody's situation is a little bit different. So

John Tyreman 24:07

cool. That's another way to enable good decision making is to understand the pain of paying and your counterpart. All right. So Mark, your last one is optimism bias. Let's dig into that one.

Mark Wainwright 24:17

Yeah. So this can have optimism bias again, is that belief that we have in our head that things are going to. Things are going to turn out well, most, all the time or most of the time, right? And we are not going to, we're not going to fail, right? and this is, you'd think those two things in a lot of situations, maybe it's a 50, 50, you would think that they would be equally weighted, but they are not. Our brains tell us that regardless of the situation, things are going to work out fine and we're not going to run out, run across any problems. roadblocks or speed bumps or anything. And quite often we do, right? So this is dangerous for all parties involved, clients, consultants, whoever you are, that, and what happens is that, early on in the process, when you are working through the details, when you're maybe putting together pricing and scoping, et cetera, maybe, timelines, this overly optimistic sort of optimism bias makes us think that we can do things in a shorter amount of time for fewer dollars and the scope is going to be nice and tight and manageable, but lo and behold. Most things don't end up that way, right? we add scope timelines, extend, prices balloon, all of that happens. So just coming into that initial conversation with your prospective clients And really being kind of overt about it, say, look, it would be really smart for all of us to be aware that things can change, that we can, run across some issues in the future. And what's going to be the test of a really good client consultant relationship is how we resolve those and how we work through them. But let's come into this eyes wide open and make sure that we are considering, all the Sort of unexpected sort of intangibles that we can't quite put our finger on now, but we should be expecting.

John Tyreman 26:13

I'm reminded of Murphy's law, right? Anything that can go wrong will go wrong. plan for it. So yeah, no, that's, it's a point well taken. And, I'm just reminded of how many times I build out a to do list for the next day thinking, okay, I'm going to be able to get all this stuff done and I'm, and never can. Same thing. It's Yep. I'm always, yeah. I'm a victim of the optimism bias. so these are great, cognitive biases, Mark, I think we did a good job running through each of them. you mentioned that there are some resources that you have come across recently, or maybe just over the last few years, you mentioned that you've been getting kind of more into learning about this kind of stuff. What? What resources have you come across that our listeners might find valuable?

Mark Wainwright 26:58

hesitant to use the term Bible on this because, people take that one way or another, but I'll tell you one of the, one of the books and the resources that everyone sort of notes and turns to again and again is sort of the seminal work from Daniel Kahneman, which is thinking fast and slow, which Kind of opened up this whole idea of cognitive bias and the way our brains function. And he presents these, two systems in our brain. One fast thinking, one slow thinking. And the fast thinking thing is this, irrational, illogical decision making processes that we find ourselves in all the time. Completely, Unknowingly, right? Unconsciously, we find ourselves there. So that's an interesting one. It is a big book. It is a dense book. I have it. I use it as much as as a resource as I do as a, page turner, if I need to find some information, I go and find it because it's a big one, but it, we would be remiss, not to, Mentioned that one. there's a great organization out there called the Decision Lab, and they are a consulting firm. I am not familiar with them personally, but they have fantastic resources online, the Decision Lab. And they talk through all different types of cognitive biases, and they have a really great informative site. So they're great. And there's an individual that I've come across that is a consultant to firms of all types. her name is Melina Palmer. She has a podcast called the brainy business podcast and, she offers speaking engagements, et cetera. Molina's focus is on behavioral economics, and, so she inevitably wraps in cognitive bias and all the things that we've talked about here and more so been a good resource, for me.

John Tyreman 28:32

one that comes to mind for me is I follow, a woman, her name is Caitlin Burgoyne on LinkedIn and Twitter. And she has an email newsletter called why we buy. And it's, regardless of whether you're in a professional services firm or if you're marketing a consumer product, I think, again, I think we made the point that these cognitive biases can apply. So I would highly recommend subscribing to that newsletter. She packs a lot of value in each edition, gives it with examples and kind of like psychological studies to back up some of these, these cognitive biases. So check that out.

Mark Wainwright 29:08

Good, good. That's a good one, John. I have really enjoyed this episode. Thanks for walking down the path of, cognitive bias with me once again.

John Tyreman 29:19

Absolutely. Until next time,

Mark Wainwright 29:21

until next time.