Saturday, January 5, 2013

Empathize to Ease the Endowment Effect

If you sell used merchandise or accept customer trade-ins, you face the “endowment effect.” People set a higher value on objects they own than on equivalent objects they do not. Among other consumer behaviors, it explains why people hesitate tossing foods with an expiration date from last week and why people hesitate selling their used items at a price you’d find attractive. In general, people place somewhat more importance on the relative amount of the trade-in credit than on the relative amount of the replacement item price.
     Findings from a set of five research studies at Boston University and University of Pittsburgh suggest you mobilize empathy to ease disagreements due to the endowment effect. When you empathize with the consumer wanting to sell you an item and acknowledge the special value the item has to them, you’ve set the groundwork for fruitful negotiations. The researchers saw the endowment effect result in differences of over 20% between price estimates of buyers and sellers of used merchandise, and then saw these considerable differences reduced significantly when the buyer evidenced empathy.
     Empathizing is easier when you and the consumer recognize your similarities. Or you fake similarities: Researchers at University of Southern Brittany found transaction success when a salesperson subtly mimicked the shopper.
     A University of Toronto study finds that if the shopper has their mate, partner, or children with them, the endowment effect is stronger than if the shopper is unaccompanied when dealing with you. The shopper will hold out for a higher trade-in price. This might be because it’s easier to establish mutual empathy one-to-one. If the person does have family or friends along and you sense the endowment effect arising, see if you can convince the person to go to a separate area for your negotiations. Failing this, find similarities between this consumer’s situation with family and friends and your own, then talk about those for a little while.
     The Boston/Pittsburgh research findings yield one more suggestion for avoiding the hassle of the endowment effect: Some consumers, by the nature of their skills and personality, are good at connecting with others. These consumers show less of the endowment effect when in negotiations regarding the sale of their merchandise to retailers. If you, as a retailer, have regulars who sell you items for resale or trade-in, reach out to those of the regulars who show this ability to connect with you.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Trade On the Right Trade-In Payments 
Announce Commonalities with Shoppers 
Twin the Shopper Subtly to Double Rapport

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