Fable Friday: Rolex watches and commercial loan price objections

Some years ago the CEO of Rolex was asked a question at a press conference about pricing strategy.  It went something like, “How do you justify charging thousands of dollars for a watch when today anyone can get one that keeps the time just as well for only a few dollars?”

This was a simple question to field. The CEO responded with, “You’re perfectly correct. But you misunderstand our business.  You see, we are not in the watch business or the timekeeping business.  We’re in the luxury business. We fairly price our products as luxury items and are quite successful at it.”

Gregory at Medtronic 10-2010 CroppedWe have another instance here of what is known as framing. I wrote about this recently in the post about how organ donors are given a choice to opt in or opt out. When asked to check a box to opt out, more people donate their organs.  Framing is a very powerful tool in communication, so you must be aware of when you are the victim of framing, and when you can frame an argument to your own purposes, as the Rolex CEO did.

Let me give you a practical example if you are a commercial lender, as many of my readers are bankers who have some familiarity with this scenario.

Your business customer continues to object about the pricing, terms and conditions of your loan offer, and you continue to respond in underwriting and credit language, explaining the importance of personal guarantees and so forth.

Your problem in this discussion is that you have allowed the customer to default to the lending frame, dragging you down in the weeds with details.  Why not try re-framing the discussion, getting it away from lending terms and taking it to a higher level or viewpoint.  Reframe this conversation from lending to managing risk.

Say to your customer, “You know, in talking about loan terms, my customers seem to view banks as strictly lenders, and that is not wrong.  Of course we lend money. But that is not really who we are. At a much higher level bankers are professional managers of risk, and as such we are most sensitive to every aspect of a loan agreement that puts any pressure, however slight, on our overall risk position.

I ask you to consider that even the best managed banks return only about one percent of assets, so when you ask me to (modify/reduce/waive) this requirement, please know that to do so will affect our overall risk position and therefore our pricing and our willingness to engage. Our offer is not intended as a criticism of your creditworthiness or integrity.”

Get away from arguing about collateral, PG’s and fees, and reframe your discussion as a risk manager.

Sing us a song you’re the econo-man

In recent posts I’ve discussed important communication and sales techniques related to anchoring, framing and understanding how the human mind solves problems, and I’ve attributed these posts to the brilliant work by Dr. Daniel Kahneman, “Thinking, Fast and Slow.”  If you are interested in learning more about how people make decisions and why they buy, as I am, please read this book.

I wrote to Dr. Kahneman to thank him for this contribution to our thinking, and he was gracious enough to write back to me with a very kind note.  So here’s a quick quiz. How do you think this Princeton Professor of Economics and Nobel Prize winner signed his letter?

A)     Dan Kahneman

B)      Danny K.

C)      Prof DK

D)     Dr. K

Answer next Friday.  Until then,

Think Like Your Customer

Advertisements

About Gregory LaMothe
I teach people how to sell things. I own the company ActionSystems. Visit my website at www.actionsystemstraining.com.

One Response to Fable Friday: Rolex watches and commercial loan price objections

  1. Hey Gregory – as always, great article and funny you should give the example of luxury watches… I’ve been meaning to get around to writing my own post on selling luxury items, based on a great article from Wall Street Journal online, that your readers may enjoy. It dates back to 2009 and is titled, “How to Sell a $35,000 Watch in a Recession.” See http://online.wsj.com/article/SB10001424052970203517304574304322707126380.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: