People Are More Rational Than We Think

When I worked for a large multi-billion pound news organisation, a funny thing used to happen. The sales people received a commission on all new orders, but cancellations for the month were subtracted first. However, they couldn’t receive negative commission. So if cancellations were greater than the month’s sales, they made a gain. Their total commission over all months was higher than if the cancellations had been spread evenly over the year. Hence there was an incentive for a sales person to put as many cancellations through as possible at one time, particularly in a month when sales were slow.

This may sound a bit complex, and if you have the usual British prejudice against sales people you may think they wouldn’t be able to work it out, but they did. As a result, a fairly frequent complaint from customers was that their cancellation hadn’t been processed, with cancellations always peaking in August when many sales people were on holiday.

This behaviour is a warning about more than sales commission schemes. Although individuals can behave in strange ways, and individual purchasing decisions are made on an emotional basis, overall we are rational beings and on average will behave in a manner that is to our advantage. For instance, a product that is marketed and sold brilliantly may do well initially, but ultimately if it performs poorly then those sales will disappear. 

One of our sales guys recently called a customer of my company, Actinic. We have an annual support and upgrade package, and the customer was planning to cancel it. After our sales guy explained that they would lose their loyalty bonus, which increases each year, and would need to cough up a sign-up fee if they returned at a later point, they changed their mind. They then commented that the pricing had been cleverly thought through from a business point of view.

It was certainly true that we had thought carefully about the package. However, the antidote to feeling too smug was the time it had taken to get to the conclusion, and the mistakes that we had made on the way. The point is that having finally designed a package that was rational to renew every year, we were not only seeing the results in sales, but people were even telling us that we had got it right.

It’s a joke inside many businesses that everything would be fine if it wasn’t for the customers. While we all need to relieve our frustration sometimes, we shouldn’t allow this occasional joke to allow us to degrade the people that feed us. In fact we need to respect our customers as rational beings. Yes, our sales and marketing must have some fizz, but let’s also make opting for us a sensible and rational decision. Taking that approach is the surest route to business success.