Fable Friday: Great Sex, the Dallas Cowboys, the NYS Thruway and praise your team!

The 570 mile New York State Thruway, completed in 1957 and now the fifth busiest toll road in the U.S., runs from New York City up to Albany and then west to Buffalo.  I remember its construction well because my father appraised a great deal of the property the State claimed from individual owners, and I tagged along to keep him company, just a little kid enjoying going to work with his dad.

Gregory at Medtronic 10-2010 CroppedThe Thruway Authority got this huge project approved in large part by conducting “research” to determine if the highway was needed.  They had people conduct surveys of drivers along Route 17 in upstate NY during the summer months.  Imagine you and your family are driving north out of the City in July, moving at a snail’s pace with no air conditioning in your car. At a roadside stop, a State employee asks you to respond to a survey, with questions such as, “Would you be in favor of a super-highway that would allow you to go upstate in no time at all, rather than get trapped in a traffic jam?” What do you think people said?

It fascinates me how research is conducted and statistics are used to make a point, often misleading those who are unfamiliar.  Last Monday, after the Dallas Cowboys-Denver Broncos game, Brandon George, a sports reporter for the Dallas Morning News, wrote this gem:  “In games in which Dez Bryant scores two touchdowns, the Cowboys are 1-7.”  Are we to suppose that the next time Bryant catches two TD passes, this will be bad news for the Cowboys?  What if he catches three?  Statisticians will point out the difference between correlation and causation, so these “factoids” may be interesting, but they are useless in predicting the future.

And then this Miley Cyrus comment, that people don’t have sex after age 40, drove journalists wild.  Not only was it amazing that anyone would pay attention to what she has to say about anything, it was further surprising to see how many people dug up the statistics for the decline of sexual activity as people age. What a surprise!

Daniel Kahneman, in his popular book “Thinking, Fast and Slow,” relates another example from his days in the military, when a fellow officer suggested that praising a soldier for an exceptionally good performance was ineffective because in most cases the next time the soldier performed that same task he did not do it as well, and that similarly, if you chew someone out for a bad performance, the next time you’ll see him do it well.  Kahneman points out that this is a simple example of “regression to the mean” in which all performance tends to move toward its own pre-defined average.  But over a long period of time, a regular habit of positive reinforcement and coaching for all behavior will facilitate continued growth and improvement.

How would you like to work for someone who believed that praise led to failure the next time and the only way to see you improve was to scold you when you made mistakes? Sadly, there are plenty of managers like that.

Don’t you be one of them.  Conduct research fairly and use statistics with care. The decisions you make about people and business are important.

Think Like Your Customer

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