Today at my gym we did the “Murph” workout. Murph is a classic “Hero” workout from the Crossfit world done every year to commemorate a fallen soldier, Michael P. Murphy. The Murph workout is not for the faint of heart.
A 1 Mile Run followed by,
Also, another 1 Mile Run…oh, and if you can, wear a 20lb weight vest.
I told my coach the other day was no way I could complete all 100 pull-ups and he quickly reminded me that last week I did 55 in a workout that took half the time. Why couldn’t I do another 45 in more time?
Very quickly, he had used an anchor to set a benchmark, and I was able to complete today’s workout. It wasn’t easy, but I could do it. My body was pretty much toast as I tried to finish that last 1-mile run, but I sure felt good to have completed all the other work.
Great restaurants use anchoring all the time. They show customers a list of incredibly expensive wines ($150+), some value wines ($20-30s), and usually feature some wine somewhere in the middle ($60-80). Most people, who likely would have ordered the $20-30 bottle are often persuaded to spend a little bit more, for something a little bit better.
Other businesses use anchoring to influence the buying decision they want you to make.
This is called The Decoy Effect. One of the most famous examples of this is at the movie theatre. The medium priced popcorn often costs only slightly less than the large but substantially more than the small. Most customers opt for the large, or an even pricer combo.
We’re all using similar anchoring tactics within our businesses every single day. However, sometimes, almost always without realizing it, we’re using anchoring in a way that’s detrimental to our success.
Consider the following examples:
Suppose you are evaluating a new tool for your business. Perhaps you’ve been an astute reader of the Tuesday tidbits for years, and you realize that you not only need a CRM, but you need to build out your sales, referral, and retention processes.
A quick Google search shows you dozens of off the shelf CRM solutions for pennies on the dollar. Unwittingly, you set the anchor as you’ll begin to contrast everything on price, versus value or what your business needs.
Often, the most expensive thing you can do is to get the cheapest option. What you save in price, you lose 100X over in missed opportunity. I’ve seen this scenario play out over and over again.
You “save” $30k, and end up losing $250k in missed opportunities as the inability to tailor your management approach to the tool keeps you from recognizing gaps in your salespeople’s activity and ability during different phases of the sales process.
(Those numbers are from a client I worked with who started off with an off the shelf solution, then saw an immediate increase after moving to a proprietary solution built specifically around their sales culture).
Alternatively, suppose you base sales success on beating last year’s metrics. That’s the anchor, therefore that’s what you should suspect.
Or heaven forbid, your sales manager suggests that the “industry average” revenue growth is 3%, so 5% would be an acceptable goal this year.
Why couldn’t or shouldn’t it be 30%? What if that was your anchor?
We often allow the wrong anchor to set in and we make poor decisions because of it.
It’s for these reasons that when I work with clients, we don’t talk about pricing per input or how many deliverables, and why you shouldn’t ask for them either (like the number of reports, or an exact number of interviews, or how many days someone will be on site). Instead, pricing based on the value the project brings and the expected ROI the client has agreed to.
When working with an outside expert, firm, vendor, provider, always be mindful of the anchor on which you’re basing your decisions.
Do you want six reports or do you want a 10X increase in revenue?
Do you care if the advisor is on-site three days a week or do you want the results?
Do you want the cheapest tool or the best price you can find, or do you want to make the appropriate investment to generate your desired result?
It works the other way, too – sometimes, companies believe that because there is a high price tag, it must be inherently valuable.
I’ve had dozens of CEOs confide to me that they felt they’d wasted hundreds of thousands of dollars (and sometimes millions) of investment in tools, training, software, and systems that didn’t end up panning out – money that could have been saved and invested in much more fruitful areas had they started with a results-oriented mindset.
Your Challenge For This Week:
Consider a current investment decision you’re deliberating on and be sure you’ve “checked your anchors.” One of the easiest ways to do this is to answer the question:
“What will I be able to do, after I’ve invested in this, that I cannot do today? How will that impact my ability to generate revenue, enhance profit per sale, lower costs, or make better strategic decisions?”
Ask this question throughout your decision-making process, and make sure you’re comfortable with the answer every time you do.
BONUS CHALLENGE: If you’re feeling particularly crazy, finish today’s tidbit with a 1-mile run. If you have a 20lb vest, wear it.
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