Business Bites Episode 86: Future Discounting (Why People Stink at Planning for the Future + How This Impacts You)

Future Discounting (Why People Stink at Planning for the Future + How This Impacts You)

Episode 86 on the Business Bites Podcast

The Gist Of This Episode:  Every decision we make is impacted by 3 major psychological rules.  Knowing what they are and how they affect your business internally and your sales and marketing can help you grow and succeed.  Join Rachel as she talks to Jenika McDavitt from Psychology for Photographers to discuss what those rules are and how they impact your business.  

 

What you will learn:

  • How psychology impacts your business
  • What some of the psychological rules are that influence our buying decisions and why they exist
  • How being aware of those rules can help you in your marketing and sales
  • How to combat your customers’ needs for instant gratification
  • and more!

Expand To Read Episode Transcripts

Rachel Brenke: Hello friends. It’s Rachel Brenke from The Business Bites Podcast. We are going to be joined by a wonderful guest today who’s going to talk about psychology and impacts how your consumers or your clients are making decisions about money that impacts you. We’re going to go over three major psychological rules that you need to know that can impact your business internally, and also your marketing and sales when you are trying to grow and succeed in your business. This is episode 86 so let’s go ahead and dive right on in.

Speaker 2: Welcome to The Business Bites Podcast, the podcast for busy entrepreneurs. Whether you’re an online entrepreneur, or seeking after brick and mortar success. This podcast brings you quick bites of content so you can learn and grow anywhere you are. Now here’s your host, Rachel Brenke.

Rachel Brenke: All right, so welcome to the show. I am excited for us to talk about this concept of future discounting and the psychology of how it impacts our decisions that are in front of us, and the behavior that we may be engaging in that we don’t really realize that we’re doing. So welcome. Welcome to the show.

Jenika: Thank you so much for having me.

Rachel Brenke: Yeah, I’m excited. You know your resource has been one of the best ones that I send people to, and that I also consume myself because psychology is such a huge part of business. And a lot of us don’t realize that a lot of the issues we have in business are rooted in behaviors and decisions and stuff that we have to engage in. And we want to make sure we’re doing it right. We don’t even realize we’re doing it wrong. But before we jump into all, you know, getting deep into that, can you just give us a little background of your history in entrepreneurship, and how you got to become this expert in psychology for entrepreneurs, and decision making in business?

Jenika: Yeah, so I studied psychology at Yale and I decided I wanted to be a psychology professor because I really liked not just … Everyone likes studying psychology, but I wanted to teach it to other people. So I went to graduate school and I discovered, “I don’t actually want to be a professor because that’s sort of a different lifestyle.” But while I was in graduate school, I started a photography business. And as it was growing I realized, “Wait, I’m using all of these things that I learned in school about psychology in order to run my business.” And so I decided to blog about it and then a lot of people were interested in it and it really took off. So I do get to, in the end, teach psychology, but what I really love is teaching people how to apply it to themselves because there’s so many cool findings that are locked up in research journals, and behind jargon that’s hard to understand. I see my role as translating that into plain English in actionable items for people. So that’s what I do over at Psychology for Photographers.

Rachel Brenke: And I also feel like I have an affinity to you because both you and I have a really hard subject matter to “Sell to people.” It’s a necessary evil, so to speak. With legal stuff, everyone knows they need it but they don’t really want to deal with it. And then for yours, I think many times entrepreneurs specifically, creators and photographers, they coast through not realizing how much psychology impacts simple things like selling. They think selling has to be this hardcore sleazy thing when in fact you really can package it up into this serving all through psychology. I particularly love your site, because I also feel like you run into the same robots that I do in trying to translate and make it into consumable content. And you do a really good job of that.

Jenika: Thank you so much. Yeah. So what I think is that we really focus just as human beings, all of us, this isn’t a judgment thing. Like, “Oh, you’re doing the wrong thing.” We all do this, that we focus on the decision that’s in front of us. Like, “Do I purchase this course or do I hire a lawyer or do I …” We just focus on that decision and we don’t realize we’re behaving by certain unwritten mental rules. So part of my job is to say, “Here’s what those rules are and I’m not going to tell you what to decide, but I want you to know that those rules exist and that you’re behaving by them so that you can make a better decision for yourself.” That’s all I’m here for.

Rachel Brenke: So can you give me an example? Like if someone’s sitting down and they’re like, “Oh, I found this really good legal business web course.” What decision or rules are they actually running through and they’re not realizing, or things that they need to be taking into consideration when they’re making that decision to buy into that course?

Jenika: Oh, that’s a great question. So here’s an interesting little mental rule people should know about. It’s called the availability bias or the availability heuristic, if you’re going to Google it later. And it is, we tend to over overweigh in importance things that we can think of examples for. So for example, if I said to you, “Hey, are there more words in the English language that start with K or are there more words that have K as the third letter?” So people are going to be like, “Okay, there’s going to be more words that start with K.” Because it’s really easy to think of kangaroo and Kale, and it’s harder to sit here and be like, “Okay the word ask, K is the third letter.” So just that simple ease of thinking of examples is going to change your answer to that question. So how that applies to sitting down and deciding, “Do I want to buy this legal class?”

Well, if you had just recently had a friend who had a legal problem, you’re going to be like, “Oh yeah, I totally need this. This is awesome because this thing that happened to Carrie is not going to happen to me.” But if you don’t know anyone who that’s happened to and you’re like, “No, it’s fine. It’s going to be okay. I don’t know anyone who’s had a problem. Why do I need this class?” You need to know that you’re playing by this rule that if you can think of an example you’re more likely to go with it. But if you can’t, you’re not. And you just think, “Oh, I’m just sitting here making a smart decision.” But your brain is playing by this rule. So anyway, that’s just one good one to know about.

Rachel Brenke: No, that’s a great one, because then I start reverse engineering that as the person selling the course, right? Or selling the product or service and I think to myself, “Okay, how can I point out this to this consumer?” Maybe they didn’t have a friend that had a legal issue or they don’t think they have the problem. You know, the solution that I’m selling to. So how do you highlight that to a consumer, to the person you’re trying to market and target if that availability is working against you? Because they don’t have that experience or example.

Jenika: Right, right. Well, one thing is simply to tell stories and to not … The thing is you don’t want to be like, “Here’s the worst case scenario.” And tell the story of Jim who lost $80,000 because people might be like, “Well yeah, but Jim was a weird example. That’s not going to happen to me.” But if you give examples that feel more relevant, and if you tell people about Jim and if Jim seems to be a lot like them, they’re going to be like, “Oh, okay. I can maybe see that happening to me.” Another one for photographers specifically would be if you’re trying to sell photography, because this happens to you as a photographer too. People are like, “Oh, I don’t need photos.” But if you can say to someone, “Okay, think about has there ever been a time in your life where you really wished you had a photo of something? Maybe your grandmother passed away and you didn’t have a photo with her.”

You can give examples. Everyone has one and then you can say, “You know what? My job here is to make sure you don’t have that regret about your life right now.” So maybe someone hasn’t run into a legal issue with their business, but in your case maybe they have run into one selling a house. Remember when you were selling your house and the buyer did this thing and you were so glad you had a contract? That you could look around at other things outside business where they might’ve had a legal issue and say, “Okay, think about this. Now this applies to your business too.”

Rachel Brenke: I’m glad you say it like that because I definitely, as obviously someone who’s marketing and I try to tell stories and I try to tell the most common examples. I don’t even think to think outside of the industry, like with the example you just gave, you know, to bring in the real estate situation. I didn’t even think to take it outside of it to make it more relatable. I think because I was thinking, “Oh, but I’m going to distract people. I’m going to confuse them.” But really it’s just relating and reinforcing what you’re saying.

Jenika: Yeah. Well what is a contract except a set of rules and agreements that people are making? And it’s a really good thing to have that written down, right? So another example of that would be insurance. Have you ever had to battle your insurance company for something? Having documentation on hand that you can show, “No, yes. The doctor did do this. Or, “Yes, my policy does cover this situation.” If you’ve ever been in that situation fighting an insurance company, you know how important it is to have stuff written down. So that’s another one of those you can just pull in.

Rachel Brenke: You’re so smart. I just need to have you write all my stuff for me.

Jenika: That’d be fun actually.

Rachel Brenke: And actually, it has grown me and pushed me and pulled me and that’s why I encourage, especially the creatives in particular the photographers, that listen to this podcast. I want you guys to take, I mean, this tip right here is gold. I really wish that Jenika had told me this years ago, and maybe she talked about it on the blog and I just undervalued or underestimated it, but it makes so much sense. You want to try to be as relatable as possible, especially if maybe you’re selling a specific type of product or service. Maybe you’re selling birth photography and it’s not really well known in the area, or really well talked about or referred. You’re going to have more of an uphill battle than maybe someone who sells family portraits. But yeah, the example you gave of asking about, “Well, if you ever had a time that you needed a photograph.” And I think that could work for any niche. That can work for any genre type of photography, but you could definitely utilize that in order to connect the dots to people. While they may never have had a birth before, they may not ever had a photographer present for birth photography, but they’ve had a time in their life, like you said [crosstalk 00:10:15] photograph.

Jenika: Yeah, they’ve had a time when they felt really emotional about something and wish, “Oh, I wish I could have had a photo of my husband’s face the moment he saw me in my wedding dress.” Those emotions you, it’s quick. It’s fleeting. You never get it back. Birth photography, it’s the same thing. That first moment you see your child, what if you could keep that forever? Yeah, there’s always an example you can reach to.

Rachel Brenke: I love that and I think one little note on this before we move onto the next future discounting and topics like that, but I also feel like sometimes that, at least for myself, this is more of I think a confession. I’m so afraid to speak basic or sound like I’m sounding cliché, but have to remember that when you’re putting out marketing, you’re putting out this messaging not everyone has seen what you’ve done for the last 12 years. You’re hopefully gaining new potential customers or clients. So you have to start from the basics. I know for me, I definitely fall into the trap of, “Oh, let me start talking about contracts level two.” And I have people going, “Hold on, I just found you. I don’t even know level one.” I’m like, “Oh yes.” But it’s because either I just forget as the person that’s creating the content for them, or I’m afraid to insult them. But I found that actually being basic serves the consumer and makes it easier for them to make decisions, but it definitely serves them to understand what you’re trying to say.

Jenika: Even if it is someone who’s been around for a while, maybe the last time you spoke about it, maybe they weren’t ready to hear it. And so I agree, I think there’s always value in coming back to basics. And I think you can do that without being insulting for sure. If you’re just saying, “Hey, I want to really make sure you understand this.” People appreciate reminders.

Rachel Brenke: Yeah. You know, and as for me, well, just like us talking about this here. If we had just had a superficial discussion about creating content and marketing, I’d have been like, “Oh, I got that on lockdown. But just our discussion here and you bringing an example from another industry for me to utilize to really help my potential customers or clients to relate to. That was a light bulb moment for me here.

Jenika: Awesome.

Rachel Brenke: And I think that’s why I really enjoy doing these podcasts. My audience probably thinks either I’m really dumb because I always have light bulb moments, or then I’m just really … I rely on these experts that come on here and it’s just hearing it in a different context that really does help me to grow my business too.

Jenika: Awesome. Yeah.

Rachel Brenke: All right, cool. So remind us, is it a principle? It’s availability what? What was that?

Jenika: The availability heuristic. It’s a rule that your brain uses to make decisions.

Rachel Brenke: Availability heuristic. All right. I’m going to call that availability rule so I don’t butcher it. Awesome. All right, let’s move on to future discounting. Can you explain to us what that is and how that can really work in sales?

Jenika: Sure. Future discounting is the idea that as human beings, again, no judgment here, this is just us as humans and how we evolved. We would often prefer to get a smaller reward sooner than a bigger reward later. This is really obvious if you think about just eating. I would much, much rather eat a brownie right now than eat a carrot so I can be healthy 20 years from now. So that’s a basic thing. But it’s interesting because they’ve done studies and they’ve gone into a lab and say, “Hey, Would you rather have $50 right now? Or I’ll send you $100 a year from now.” Almost everyone picks the $50 now. Which in a way makes no sense whatsoever. It’s like, “You could’ve doubled your money.” But we have this extreme preference. It’s just a rule. We have an extreme preference for present reward and it’s not even … A year doesn’t even make any difference.

So you could say to someone, “I’ll give you $50 five years from now, or $100 six years from now.” People will be like, “Oh, I’ll wait six years. So there’s still a year’s difference between five years and six years, but they would still rather have it today versus a year from now. So there’s nothing logical about this. It’s just we want things right now. This is sort of a sidebar, but there is some evidence actually that people who are compulsive gamblers and people who are drug addicts show extra preference for present reward over future reward.

Rachel Brenke: Makes sense, yeah.

Jenika: It’s kind of interesting. It’s not clear whether that causes the addiction or results from it, but it’s just this interesting thing. We just really want rewards now.

Rachel Brenke: Well, with this reward attitude, do you feel like this future discounting and this reward attitude, is it a rule that is timeless one? Or, here’s where I’m going with this. We live in now the Amazon age. I can log on, buy something and it’ll be at my doorstep tomorrow, right? This whole immediate gratification. I log onto Google, I get my results right then. I don’t have to drive down to the library and open an encyclopedia. So we have this instant gratification society now. Is that mean that this rule is just even more proven now, or is that going to become even more favorable to smaller rewards because of the way that society has changed? I guess I don’t really know if I articulated [crosstalk 00:15:28].

Jenika: Yeah, no, I think I know what you mean. I think certainly we’re so quickly reinforced that I think that it’s extra highlighted for us. Yeah, that we’d rather have the reward now. We’d rather do this thing now, now, now. I do think it comes from our evolution though. So if you think about a hunter-gatherer society. Are you going to shoot the deer that’s in front of you or are you going to wait for a bigger one to come by? Well, no, you’re going to shoot the one in front of you because you need food now. So there is this innate thing that has come with our brains. This hardware we’re all running on that, “I need the sure thing.” I also think we should have compassion on ourselves for this. We’re always like, “Oh yeah, I shouldn’t eat the brownie. I’m terrible.” Like what? You came from an evolutionary environment in which you know what? Maybe you were going to die tomorrow and so it does makes sense. So I think you should go easy on yourself. I still think you should eat the carrot, but I think you should go easy on yourself.

Rachel Brenke: Oh, I was going to go for the brownie but …

Jenika: No judgment. I think that you just need to be aware that that is how your mind thinks. Also, there’s a social aspect too. So if you go out to dinner with a friend and they say, “Hey, can I borrow $10?” and you’re like, “Sure.” And then they come back to the next day and say, “Hey, I can give you the $10 now or when I get paid at the end of the month, I’ll give you $15 for waiting.” Now there you have to decide, “How much do I trust this friend?” So there’s that risk and so that’s also part of why we tend to prefer money now because it’s like, “Well, there’s always a social risk. Will this happen? Will this not happen?” And that is what plays into your business. Is that that evaluation of risk. But we can talk about that in a minute.

Rachel Brenke: Yeah, I want to talk about that in the context of money back guarantees. I’m not sure how much they weigh into the psychology of that, but as far this future discounting. This idea of getting a smaller reward sooner than a bigger reward later, do you have an example of that in the context of business?

Jenika: Yeah. Well here’s one right now. Purchasing a contract from you. Right? Okay. It’s really just investments in general. Like, you know, are you going to invest money in your IRA? Are you going to keep it? You’re going to spend it? Am I going to purchase a contract and pay a lawyer to review it for 500 to 1000 dollars now? Or am I going to take the risks that maybe I’m not going to need it. And that’s actually what a lot of people do. That’s the problem. They would rather have the reward or be able to use that money now. Have it available now than to purchase a contract, hire lawyer. Same thing with hiring an accountant. Same thing with purchasing business insurance. The decision you’re making is, “I would rather have that money available to me now than run the risk that, well, maybe I won’t get the pay off and the ROI later. Maybe I will never have a problem. So I’d rather have the money now.”

That’s really just the decision you’re making. And again, I’m not here to sit in judgment of you. You just need to know. That’s the decision you’re making. I think that creative people and photographers are especially vulnerable to this, because when you’re in a creative industry you tend to start working with your friends and you’re like, “No way is Alice going to sue me. It’s fine. I’ll just tell her what we’re going to do. She’ll give me the money. It’s fine.” Well, you know what? You really don’t know Alice. I don’t care how well you think you know your friends where there’s something big and emotional on the line, their behavior can change quickly.

Rachel Brenke: Well, one of the things I’ve noticed too is I tend to put a lot of benefit of the doubt in people, because I’m looking at it through the perspective of what I would do in a situation. So I know I would never treat someone X, Y and Z. So I don’t expect others to treat me in that way either. So I can see how people talk themselves out of needing a contract if they’re doing business with a friend. For me, most times, I wouldn’t be willing to skewer relationship over something like photographs.

Jenika: Right, right. I think a lot of people think that way too. Like, “Well, what would I do in this situation?” And then it results in a situation where they’re not operating safely really, and they’ve got some big holes in their business ship as it were, and they don’t realize that they could take on water at any moment. Here’s what I want you to know. As a smart business owner, you can actually fight this preference for present reward if you reconsider what you think to be the cost of doing business. So if you say, “You know what? My cost of doing business is my camera, my software, my taxes, but also add in there protection against future harm.” So you know what? Yes, it sucks to pay $500 now for a contract or a consult with a lawyer.

Rachel Brenke: It does. It does.

Jenika: It does, it does.

Rachel Brenke: [inaudible 00:20:37] insurance. If you count up all the years that you’ve paid for insurance and you’ve never had a car accident. You’re like, “Man, that’s all that money wasted. I could have taken a cruise.” But what if you had had a really bad car accident?

Jenika: Yeah, and the other thing to know is future discounting does have limits to it. So if you said to someone, “Okay, you can have $500 now or $8,000 a year from now.” Most people would actually wait and take the 8,000 even though they prefer the present reward. So the way I think of it as I change the math in my head. I don’t think of it as, “Well, I can pay $500 for the contract now, or just take the chance that maybe I’ll never need to spend that money.” What I think of it as personally is, “Okay, I can pay $500 now to avoid having to pay $8,000 later on some small claim because someone wanted whatever.”

Rachel Brenke: Which [inaudible 00:21:26] these numbers. I don’t know if you’ve heard me on other episodes, those numbers are pretty much in line with the examples I give all the time. And you guys can relay this over to your business, whatever it is that you’re trying to sell. But in this example, I’ll have people that’ll come and say, “Oh, you know, how much do you charge for contracts?” And I’m like, “Oh, it’s probably going to be five, six, $700 to do a contract.” They’re like, “Oh, I don’t have the money. I don’t want to spend that.” Then a couple months later there’s a small claims issue, they’re going to be paying out six, $7,000 because you just don’t know what the other side’s going to do. But in that though, because even people listening right now are probably thinking, “Well, that’ll never happen to me.” Or, “I don’t have enough clients for that to run into.”

Rachel Brenke: How do we change the narrative in our mind to talk ourselves out of making the wrong decision? Because I feel like I’m always fighting with my subject matter of that. It’s not so much they don’t know what they don’t know, but it’s more of this, “Well, I could have the money now to buy X, Y, and Z for the business, I don’t have a lot of clients and that’s probably not going to happen to me. So I’m just not going to invest.” And I don’t know if I have figured out how to break through to that other than being a broken record.

Jenika: Well, let’s just acknowledge, okay, it is possible that in a 30 year span of your career doing whatever you’re doing, that you’re never going to have a problem. It’s possible.

Rachel Brenke: Low. Very low.

Jenika: It’s also possible that, again, I would switch to another domain. It’s possible that in the next 30 years, nothing in my house will need to be repaired. It’s possible. My house, I bought it brand new. It’s in great condition. I take really good care of my house. I take really good care of my house. It’s possible. Is that a wise gamble that 100% of the time that every single thing that the contractor’s installed in the house that nothing’s going to go wrong with it? That nobody’s going to try to break into it. That one of my kids isn’t going to do something. I’m placing a lot of trust in other people that that’s not going to happen.

So that’s one thing, is if you look at the span like in a long span of time, if you think about the last 30 years of your life, have there been things happened that went wrong that you didn’t expect? So that’s one way. Another way is to think of it like, “Okay, okay.” Let’s look at it from a budgeting perspective. Okay. You don’t spend the $500 now. Okay. Imagine that six years from now someone’s going to be really unhappy. They’re going to sue you for $8,000. That’s a reasonable thing that could happen that is nowhere outside the realm of possibility. So are you going to start saving $500 a month now so that you have it available when that happens? Because that’s what you do with home repairs, right? Or that’s what you should do with home repairs.

Rachel Brenke: Should do.

Jenika: I know that my furnace is going to die in the next 30 years at some point because that’s how long the life span of a furnace is. I need to be saving up for it now so that when it happens I don’t have to suddenly pay $3,000 that I may not have at the time. That’s what I was trying to say earlier about, I think you consider it a cost of doing business that someday someone might be unhappy. That’s just a cost of doing business. It’s not that you’re a bad creative person. It’s not that you’re a bad business owner, it’s just sometimes people are unhappy. Sometimes things go wrong and you need to either spend money now on something like a contract, or you need to be saving money now so that when it happens, not if, when it happens you can just be like, “Okay, yeah. I’ll just pay out of pocket for that. No problem.” So to-

Rachel Brenke: Sometimes-

Jenika: Yeah.

Rachel Brenke: Go ahead. No, go ahead.

Jenika: So to me it’s really just, “Okay, do you want to budget the money for it now or do you want to start saving now and gamble that you’re going to have enough in the bank by the time it happens?” It’s just like a home repair to me.

Rachel Brenke: And I’m trying to think of how we could equate this to the creative that’s listening. How can they utilize this idea, this rule of future discounting? How can they use it to benefit them with their clients or their customers? I’m trying to think of an example of how we can use this, I guess, to get someone to buy into a smaller reward to get them hooked into buying your product or service.

Jenika: Yeah. Well, the whole idea of payment plans really takes advantage of this concept. We think, “Oh, if I offer you a payment plan, you can pay $300 to book and then exit this date and exit this date.” We think, “Oh, well that’s just because they’ll have more chances to get paychecks and they can spread it out.” And that’s true. But it’s also, there’s the psychological element of, “Oh wait, I can have this thing now. I can start this process now without having to pay the whole thing. Cool.” So that does benefit you in that respect. Like, “Oh, I can have this thing immediately? Awesome.” Another way to consider it though is I keep using photography because that’s what I’m most familiar with, but selling photography is, I’ve said for years, it’s a lot like selling insurance because the photos you’re taking now are going to be more valuable 30 years from now than they are. But you still want to spend the money on your vacation now than these photos that your kids are going to be … They’re going to think our priceless in 50 years.

So I think that simply talking to your clients about it, and again asking people to think backwards. So instead of asking you to think forwards, “Oh, you’re going to want this 30 years from now.” Ask them to think backwards, “What photos do you wish you had from 30 years ago? Give me a list and have …” Seriously, post this on Facebook. Have people give you a list. Like, “What photos do you wish you had?” And then follow it up with, “Okay, today’s the day to have the photos for 30 years from now. What photos are you going to want to have?” And again, ask people to make you a list. You’ll get a lot of comments. It sort of makes the point, I think.

Rachel Brenke: And you know what’s funny is she just gave you guys a social media marketing plan right there and you’ll get engagement going. You’ll get answers, you’ll have stuff that you can take, create future content with, and that you can also utilize to sell. Which, and again, I hate the term sell because it really is serving and you are serving them.

Jenika: Oh, yeah.

Rachel Brenke: When you know what they would have wanted or what they do want, you are serving to them. So you’re using this psychological rule of future discounting and reversing it onto them as opposed to something as straight forward, I think with our example of a cost of doing business. That’s logical for us. But when we’re going and talking to consumers, they’re looking at it from an emotional standpoint, probably not so logical.

Jenika: Yeah. So I had a whole post about what you just said. Let’s say you’re planning to do a social media promotion of your fall sessions or your fall offering, whatever it is. In the month or the six weeks leading up to it, start asking people questions that’s going to get them thinking about it. So ask them, “What are the photos you wish you had?” Ask them, “What about your life right now do you never want to forget? What do you remember about last summer that you’re already starting to forget?” So get them sort of already thinking about memory and how it degrades over time, and if they are already giving you examples they’re making the point for you. So that now when you make your offer, you can say, “Remember all this stuff we’ve just spent six weeks talking about, here is the solution. Here’s the solution to all that wistfulness. Here’s how you make sure you don’t have it.”

And then they’re already primed to be thinking about it in a more intelligent way, but also they’ve just given you all the arguments. You haven’t had to make a single argument. They made the argument for you like, “Oh yeah, I really wish I had photos of me with my mom.” Well Duh, what are you doing for your kids? You know?

Rachel Brenke: Your kids, yeah.

Jenika: But you didn’t have to make that point, they made it. And they’ll make it in their head, which is more powerful than you just talking at them.

Rachel Brenke: And then you just come in and you save the day and you provide them the solution for what they need. Yeah, superhero. Save the day. Awesome. I do want to ask one last thing. We kind of got off track with it earlier as far as money back guarantees, refund policies and all of that. How does that play into any of this psychology that we’ve talked about, or is it kind of completely different set of rules?

Jenika: I think the money back guarantee is not so much future discounting because you’re still asking them to pay money upfront, but I think what that does is it … There’s something else called loss aversion where we just really do not like the idea of losing things, and we are more afraid of potential losses than we are excited about potential gains. I guess that does go with future discounting, but because we’re more afraid of losses than potential gains if someone purchases from you, they’re more afraid that something’s going to go wrong than they are excited about, “Oh yeah, I’m going to get this cool thing.” So what a money back guarantee does is it prevents them from being able to say that. Like, “It’s fine. If something does go wrong, You get your money back. It’s okay.” So it’s sort of related. I do think it is related.

Rachel Brenke: That’s interesting. And the reason I ask, and this goes back around what we talked about in the very beginning with the availability principle, or the rule and well what I was thinking was when it comes to legal courses. Because one of the things that I’m always asked about [inaudible 00:31:04] Do you have a money back guarantee? In my personal experience, I’ve tried both. I’ve tried money back guarantee, I’ve tried it without and it’s exactly what you just said. It’s because people want to mitigate some of the risks, and as someone who believes in the quality of my products and all of that, I’m cool if you get in and you realize, “Hey, this is pretty awesome. I don’t even need to use it.” Right? But it helped to reduce any objections that they needed. But at the same time I also see the value in standing firm in whatever it is that you offer, and not feeling you need to provide a money risk or money back, risk lowering guarantee. What’s your opinion on offering them or not offering them?

Jenika: Well, I think you outlined it pretty well. I think that especially if it’s something that involves your time. If you’re offering a course and someone asks for their money back, you’re not really out any time personally because they purchased the course. And as long as a bunch of people purchased it you’re compensated for the time you spent creating it. But if you’re going to spend, 20/30 hours on somebody’s family photos, it’s a little bit different because then you’re taking on the risk. So that may or may not work. So you can think of another way to help them with that. Just by assuring them. That’s where relationship comes into play. Just like you believe that your friend is going to give you the $15 at the end of the month. So you’re not going to take the $10 today. If you’ve established relationships with people over time, this is another thing I spend a ton of time talking about over at Psychology Photographers. If you’ve established relationships, then what you can tell them is, “I will make sure you’re happy and if you are unhappy at any point you let me know, I will make it right.” And if you’ve done the work to establish trust, then that can also serve as in lieu of a money back guarantee.

Rachel Brenke: And I love that you said that because even though as an attorney, even though I sell contracts I still put the most value in the creating of the relationship, and offering customer service, and being a human being. Contracts are there to be a backup, right? They’re there to help you have a backbone if you feel like you’re being walked over. They’re there to protect you legally. But it really is, everything comes down to relationships, and I feel like … That’s almost becoming cliché in this whole freemium model marketing that we have which you see everywhere. Relation, connect, story. But it’s true. Just look at the big name companies out there that all their marketing has gone away from … Like Huggies. Maybe that’s not a good example, but some of the diaper companies and even some of the paper towel companies, they’ve gone away from talking about their product and selling the story, right? Really and the story has absolutely nothing to do with the product, but they’re selling an emotion of who they’re trying to talk to, and there’s great power in that that I think is going to far surpass anything you can put in a contract. That you can put on a sales page and it all comes down to trust and relationships. Exactly what you just said.

Jenika: Yeah.

Rachel Brenke: Awesome. Cool. Well thank you so much for coming on today. We’ve gone over availability, future discounting and loss aversion a bit. Do you have anything that you want to leave them with? One little nugget that may spur them into more psychology research or change their perspective of how psychology weighs in?

Jenika: Well, one thing I just want to say if you want to learn more, I use the word future discounting because it’s the most friendly term for it. If you’re going to Google it, you’re going to want to look up the word hyperbolic discounting, but I think that’s a terrible word.

Rachel Brenke: I wouldn’t Google it. That’s for sure.

Jenika: So if you want to look it up, look up the word hyperbolic discounting. There’s six names for it. It’s all the same principle though. I think the last thing I would say is just to keep in mind that a lot of what your brain is trying to do for you is it’s playing by rules so that it can speed things up. You can’t go into every situation and evaluate every possible option, and it would just get completely overloaded with information. So that is why it invented these rules. Okay, if I can think of examples really quick then I’m going to go with that. So the whole point of all of these biases your brain has is it’s trying to grapple with the amount of information available in the world and say, “Okay, I’m just going to make a set of rules. I’m going to play by those rules and everything’s going to be okay most of the time.”

So I think if you spend some time learning about those rules, then you can say, “Okay, you know what? Most of the time those actually are fine.” But you can also see where, “Okay, maybe I need to change things a little bit.” I do have a free download that you can get from me. It’s How Clients Make Decisions About Money. All it is is some mental rules your clients are using, and you can set things up so they can use it to your advantage and their advantage a little better.

Rachel Brenke: Cool. We’re going to link that at rachelbrenke.com/epi86. You guys will be able to get all the show notes. We’ll have cliff notes in there as well and it will have links to all of Jenika’s stuff so that you can check that out. Even though you may not be in the photography field. Wealth of knowledge, easy to apply it to any other type of business that you’re in. Definitely encourage you guys to dig into her resource. Yes, yes, yes. I have learned immensely. A lot of what I even talk about on this podcast. There’s probably nuggets that I’ve gotten out of from just watching her marketing, watching how she implements and the teachings that she’s done in psychology just to connect, and to convey messaging to be able to be successful in entrepreneurship.

So thank you so much for coming today. I greatly appreciate you being in here. Guys, don’t forget to dive into The Business Bites Podcast Facebook group. We’ve got a lot of good topics. I’m also going to be posting all of Jenika’s stuff in there as well, and if you have any questions at all, feel free to reach out. We’re happy to help.

Speaker 2: Thanks for joining Rachel on this episode of The Business Bites. For show notes, a list of recommended tools or referenced episodes. You can find them at businessbitespodcast.com. Until next time.

Tool and Resources:

Featured Guest & Resources

Jenika graduated from Yale with honors in psychology and went on to earn a master’s degree. She helps creative professionals find and thrill new clients over at the award-winning blog Psychology for Photographers. There, she shares research-backed (but totally readable) advice on how to sell more, anticipate client needs, prevent sticky situations, and breathe easier in business.

You can find Jenika here:
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Hi, I’m Rachel Brenke

Rachel Brenke

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