Endowment Effect: The 2 Most Important Words In Boat Sales
Can you tell me which way the subway is going?
Ok, now double check. Are you sure it is not coming from the other side?
Just like our eyes can be tricked by visual illusions, our mind can be tricked by cognitive illusions.
Imagine that you are waiting in line at the supermarket getting ready to check out with your $14 pack of double A batteries when the person in front of you turns around and tells you that in another store, 20 min from here, the same pack of batteries is on sale for $7.
You are most likely to drive 20 minutes across town to get the batteries for $7.
A few days later, you are at the electronic store. You are standing in line ready to check out with your $400 TV when a shopper tells you that across town they have the exact same TV for $393. You weigh the facts and quickly realize that driving 20 min for $7 is not reasonable and you end up buying the TV there.
You have just experienced a cognitive bias. Why would you drive 20 min to save $7 for a pack of batteries but not for a TV? It is the same amount and the same driving time after all!
This example reveals how irrational we can be when it comes to consumer behavior. Not identifying these cognitive illusions might cost you a lot of money and especially if you are in sales. Do you know the most important psychological trigger preventing you from selling boats?
Understanding it will help you master the sales process and get a huge advantage over the competition. It is the reason why it is usually a long process to sell brokerage boats.
I was looking at some Yachtworld statistics the other day. They were reporting just over 2900 boats sold for the month of April. If you take this number and divide it by the total number of listings on the site (around 130k), you get an average of 44 months or nearly 4 years per listing.
Why is the selling cycle so long?
The 3 major factors that influence a boat being sold are The condition of the boat, the marketing efforts, and the price.
Price is by far the most critical element in the selling process. But why are boats rarely priced right and often much more than their final selling price?
A strange thing happens in our mind when we buy something. No matter if it is a pair of shoes, a car or a boat. As soon as we become an owner, our mind undergoes an instant transformation. Haven’t you noticed when you buy a new car you suddenly start noticing the same model appearing everywhere? It is simply because you are becoming hyper aware of your car but as well as emotionally attached to it.
If you are a boat owner, you likely value your boat more than what it is really worth in the marketplace. And it's completely natural because we all do it. As a result, if someone offers to buy it from you, chances are you want to charge much more than they are prepared to pay.
This psychological bias is called the Endowment Effect (the 2 most important words when it comes to selling brokerage boats)
Behavioural Economic Experts define it as: “ A tendency to overvalue something just because we own it”.
A few years ago, social scientists Richard Thaler, Daniel Kahneman and Jack L Knetsch conducted an interesting experiment with students at the University of Cornell.
The professors distributed coffee cups to half of the students and left the other half empty handed. They then asked the empty handed group to estimate a buying price. The group who received coffee were then asked to come up with a selling price. The experiment came up with an interesting conclusion. The students with cups were unwilling to sell for less than $5.25 while the group who didn’t receive coffee were unwilling to spend more than $2.25. The difference in price of nearly 50% will have a huge impact in the potential trading volume.
Your role as a broker is to be the mediator and facilitate the transaction.
The problem is that every seller wants more than what their boat is worth and every buyer wants to buy for less than it is listed for. Your job is to negotiate a price in the middle that attracts the buyer but also satisfies the seller; this is the most challenging part of the selling process. Once you understand the reasons behind the endowment effect, you can use them to your advantage to educate your clients and prepare them mentally to accept a more realistic pricing.
Pride of ownership is not the only thing that will create a bias in your ability to price your boat properly. The time that you have owned it, the amount of money or effort you spent on it, the attachment to the brand and the memories associated with your boat will all contribute to the typical over evaluation.
Now that we understand the human psychology behind the endowment effect, let’s try to find some solutions to help you influence your clients to list their boats at the right price.
Learn more psychological triggers to improve sales on my last training program: The 30 Secrets To Boat Sales
Preparation, techniques, and script.
1) Be prepared
The best advice I can give you is to be prepared; these are the 5 most important things:
- Learn about the boat
- Learn about the prospect
- Get some market data
- Prepare your listing script
- Give a pre-listing package
Preparation is one of the most important elements to help you get quality listings. The best investment you can do is to put together a pre-listing package. It will truly set you apart.
You’ll have to invest a little bit of time to put it together but once it is done, you will be able to use it for all your future listings.
I am working on a new training program called Boat Sales Blueprint where I will go into detail with the exact templates for putting the best pre-listing package together.
The pre-listing package has 6 main goals:
- Help you list;
- Demonstrate Expertise;
- Share Social Proof;
- Demonstrate Authority;
- Build Trust;
- Reduce or remove the clients' fears.
It might be composed of the following:
- Brief customer oriented bio of the broker
- 10 Reasons why they should use you as a broker or your firm (Respond to the 5 main fears of your clients but as well as their 5 main concerns)
- Copy of listing agreement
- Business Card
- Written Testimonials
- Brief overview of marketing initiatives
- Guarantee (always try to offer a guarantee to your client)
- Booklet: Boat Selling 101: 25 Tips To Sell Your Boat Faster & For More
- Resources: contact info of detailing company, mechanic, marine electronic, registry, insurance, etc…
If you can, email a price suggestion to the owner prior to the meeting. Make sure to state that it is not based on your own opinion but based on market data analysis. For instance, you can write: "Based on market data, it seems that Boston Whaler 26 from 2005 sold between x to y.” Chances are they will contact you back and complain about the price. Just say, “I understand, let’s discuss this tomorrow when I come to your office. Is there any other concern that you might have about listing your boat with us? “
This will allow you to know prior your listing appointment what the client’s objections and concerns are and give you some time to work on them.
2) The Listing Appointment Rules
1) Do not show that you are desperate to list the boat
If you show that you are desperate to list the boat, the seller will be in a control and will most likely take advantage of the situation by listing his boat to their desired price which will make your job harder.
2) Do your demonstration prior suggesting a listing price
Always proceed with your full demonstration prior mentioning your fee for service or agreeing on a listing price. You can start by saying something like: “John, I suggest I show you what our marketing plans and selling your boats are, then we can discuss about the price, is this ok with you?"
3) Never give your personal opinion about the price
When the potential client asks you “What price do you think I should list it at?”, do not answer with your opinion. You might know the right price, but you will offend them and maybe lose the listing. Don’t start your relationship with your potential client by upsetting them before even starting to work together. You know that they are super attached to their boats and will react badly to a more realistic suggestion. See rule#4 instead.
4) Let the market data answer the question: What price should we list it for?
Avoid showing them boats already listed as chances are they too are overpriced. Use a database of sold boats like www.soldboats.com and show them on paper how much similar models sold for.
5) Show them that you are on their side
After sharing the bad news by showing them the data, regain their trust by showing them that you are on their side. You can say the following: "As you know, our service fee (avoid the word commission) is proportional to the final price so it is in our best interest to sell your boat at the best price."
4) Put them in the buyer's shoes (Educate them about the endowment effect)
It is essential that you educate your client about the fact that they will over evaluate their boat simply because they own it. I will share with you in the script later how you can do it.
6) If you don’t list for a reasonable price get a written promise of price reduction
If you really cannot get them to list it for a realistic price, add the following: “Let’s try our best at your suggested price. If the boat doesn’t have an offer or a sale pending in the next 4 weeks we can adjust the price to the recommended amount."
It is much easier to get a significant price reduction ahead of time rather than having to go back to the seller, feeling bad for not having any activity and asking again to drop the price. Make sure to have a pre-signed form to reduce the price after the decided period.
7) Listen and make it about them
A great boat broker should be a master communicator, which means talking AND listening. When we say listen, we mean really listen, not just pretend to be listening. A boat broker has 2 ears and one mouth, and your job is to communicate to your client by keeping the same ratio.
Always remember that SILENT is an anagram for LISTEN, so keep quiet and listen clearly to what your clients have to say.
8) Quality vs Quantity
Would you rather have 90 listings and sell 10% of them every year or have 10 listings and sell 90% of them every year?
Sales professionals often associate an increase in sales directly to an increase in their number of listings. Remember that your closing ratio is more important and that the quality of your listings will have a huge influence on it. Always remember that the law of gravity applies to sales too: It is much easier to influence a seller to lower their price to a realistic market value than it is to influence a buyer to pay more for an overpriced boat.
If you would like to receive a detailed script to know exactly what to say to your clients and maximize your chances of getting quality listings, email me at HERE
What do you think of the above-mentioned strategies?
Have you ever used them or do you have your own method that you use to get more quality listings?
Comment below and make sure to sign up for our newsletter as in the next post I will share with you the exact technique I used to list my first million dollar boat.