Here at TaxCoach, we’ve always said that the most effective way to sign more clients is appeal to their sense of pain, rather than gain. Richard Thaler and Daniel Kahneman won the 2002 Nobel Prize in Economics in part for their work showing that consumers feel the emotional impact of pain twice as strongly as the emotional impact of gain.
Members across the country have told us that pitching pain relief is more effective than pitching gain. As both Donald Trump and Bernie Sanders would say, there’s a YUGE difference between telling a prospective client, “I can save you $5,000 a year in taxes” and “You’re wasting $5,000 per year on taxes you’re overpaying.”
Now there’s new research that illustrates this fundamental truth – and now is a great time to remember how powerful it truly is.
Vasillas Dalakas is a Professor of Marketing at California State University San Marcos. (He’s a professor so he’s got to be smart, right?) Last term, he conducted an experiment in two sections of his class on Consumer Behavior.
Students could take a series of optional pop quizzes over the course of the semester. Each quiz counted for one point. If they answered a quiz correctly, they earned a point; if they answered incorrectly, they lost a point. Accumulate five points and they could skip the final exam.
Forty-three percent of the students in the first section accumulated enough points to skip the exam. But 82% of students in the second section did so. What was the difference?
It turns out, Professor Dalakas structured the incentives differently. He told the first class that the final exam was required, but they could opt out if they earned the five points. He told the second class that the exam was optional – but they would lose the right to opt out if they didn’t accumulate the five points.
In other words, he presented the offer to the first class as a gain, and the second class as a pain.
Is it any surprise that nearly twice the number of students worked to avoid the pain as the number of students who worked to enjoy the gain? Not to us!
Professor Dalakas compared his results to a similar study conducted by behavioral economist Dan Ariely and marketing professor Ziv Carmon. They contacted a group of students at Duke University who had won tickets to a Final Four game in a lottery and asked them how much it would take for them to sell. Then they contacted students who had not won tickets and asked how much they would be willing to buy tickets for.
The students who had won the tickets wanted an average of $1,400 to sell. But the students who missed out in the lottery were willing to pay just $170. Again, the lesson is clear: “owners of an item evaluate it significantly more favorably than nonowners.” In other words, losing something (like wasted tax dollars) has a greater emotional impact than gaining it.
How does this affect your business? Easy! Let’s say you’re sitting down with a business owner and you’ve spotted a way to save him $5,000 per year in tax. You can tell him you can save him $5,000 per year, which is offering a gain. And he’ll be interested! But that may not be enough to convince him.
Alternatively, you can remind him that the $5,000 started out in his pocket, not the IRS’s. Then you can offer to rescue the $5,000 that he’s currently wasting. Now you’re offering to relieve an actual pain. And while that may not be enough to seal the deal, it’s much more compelling than merely promising a gain.
Switching from a gain mentality to a pain mentality isn’t always easy. But in the long run, the rewards will be well worth it. So next time you’re proposing your service, don’t ask yourself how much gain you can offer. Ask yourself how much pain you can relieve. You’ll close more clients, and they’ll even appreciate you more. So what’s not to love?