In his bestselling book Pitch Anything, deal-closing guru Oren Klaff says that when two parties meet in a selling situation, their frames collide.
Klaff defines a frame as the instrument you use to package your power, authority, strength, information, and status.
The moment your frame makes contact with the frame of another person, they clash.
If your frame wins this collision, you get frame control, whereby your ideas are accepted (and followed) by the other party.
If your frame loses, you're at the mercy of your client, and your success depends on that client’s charity.
As an architect writing a proposal, your frame might go like this:
“I hope this fee is enough to cover the amount of work I'll have to do on this project. With job site visits, multiple submissions to the building department, coordination with consultants and unexpected client revisions, I'll be lucky to take home a paycheck on this project. I'm really over-delivering the value here.”
On the other hand, your client's frame looks like this:
“I know these architects are expensive. They'll probably try to pad the fee. I'm stretching my budget to get this built, I better negotiate hard here.”
When these two frames collide, it's easy to be convinced by our client's certainty that their belief is the right one.
Client's Don't Care About Their Budget as Much as They Say They Do
Academic studies have shown that our clients don't care about their budget as much as they would have us believe.
Think about the last time you made a major purchase and walked out spending more than you had originally planned.
What happened there, huh?
My wife and I recently bought a new house.
When we were looking for houses, we agreed on a maximum budget.
However, when we walked into the house we ended up buying – we fell in love.
We just had to have it — and our ‘budget' went out the window.
We spent 150% more than we had planned, and we were happy to do it.
Your job is to get your clients to feel this way about working with you – to “have to have YOU.”
Clients' perception of the relative expense or value of architectural fees is completely subjective.
How do I know?
Because clients, even sophisticated clients, have NO IDEA how much work and effort it takes to deliver a good set of coordinated contract documents.
The Relativity of Price
Let's explore the idea of this relativity of price –
Say I asked you to lift two similar sized boxes and asked you to tell me how much each weighs.
But if you only had to tell me which one was heavier – much easier right?
That's because we understand things (including pricing) through relativity and comparison.
Behavioral economists tell us that perception of value is influenced by complex human psychology.
Clients often focus on price because it is the one thing they understand the best.
We use money every day, so it's easy to establish value for money in our minds.
And it is relatively difficult to understand the value of architectural services being offered.
Every transaction has two sides: value given and the value received.
Our job as sellers in this transaction is to help our clients see that the value we're offering outweighs the value they are giving.
A study by Hinge Marketing revealed that sellers overestimate the importance of price to the buyer in a transaction by a factor of 2.
Plain word translation: your fees aren't as important as your client would have you think.
Which opens up the point of today's lesson – your clients' perception of value is influenced by their psychology.
This Psychological Trigger Reduces Fee Sensitivity
One psychological trigger that can either work for or against you is known as anchoring and adjustment.
Stanford researchers Daniel Kahneman and Amos Tversky originally described this concept of anchoring and adjustment.
In an experiment, they had participants spin a wheel that landed on either the number 10 or the number 65.
They then had them do a task completely unrelated to spinning the wheel – guess the number of African countries in the United Nations.
Those whose wheel stopped on 10 guessed a lower number than those whose wheel stopped on 65.
Even though the numbers 10 and 65 are completely unrelated to the question about African countries in the United Nations, these numbers influenced participants final guess.
The plain word translation of this concept is that when we hear a number, we use that number as an anchor which adjusts our decision and perspective on later numbers.
Dr. Robert Cialdini explains how anchoring can make a number seem smaller than it actually is.
He tells of a contractor who meets with a client to present a proposed budget. By opening with a joke about having a $1,000,000 budget, the contractor anchors his listener to that number. His actual budget, far below a million dollars, seems more reasonable by comparison.
While throwing out a large number early in the conversation doesn't make your proposal a sure win, it definitely cuts through the thick air around pricing, and used with the other psychological strategies discussed in this series, gives your client a chance to feel they are getting spectacular value.
Here are three ways architects can use this principle of anchoring and adjustment in the proposal and negotiation process:
- First, discuss the overall cost of similar projects; discuss your fees second. Your fees will seem smaller by comparison.
- Be the first to the table. It is better to be the high proposal and first than the high proposal and the last. Being first to the table allows you to educate the client on the value your firm offers and why your fee is the best logical choice for their project.
- If another firm undercuts your fee, you have the opportunity to explore with your client what the other proposal may be leaving out.
Internal Price Anchoring
Anchoring can also be used directly in a proposal by offering multiple service levels – one of which is a premium service whose fee is multiples of the standard service offering.
The premium service serves as the anchor in your fee proposal, making the other offerings more palatable to the judging client.
Anchoring can have an equally powerful negative effect on your proposals – for instance, if your prospective clients first hear a low-ball figure from a competitor or a well-intentioned friend telling them what a set of ‘plans should cost.'
This kind of input skews the client's perspective and makes your proposal seem expensive by comparison.
While the use of anchoring alone won't win you any proposals, it influences a client's decision and this psychological trigger shouldn't be overlooked when you write your next proposal.
My advice – don't believe everything they say.
Enoch, the practice I have seen is when the client has an stubborn position on price the architect lowers the service level (scope) to match the price. Unfortunately this is how architects often keep the doors of their offices open, delivering less for less. At least the client gets what they pay for.
Alternatively, with the slightly more malleable buyer of service, the response to their question is a very direct, I have only made allowance for the professional services that you need. I emphasize “you” and “need” and that if they do not follow this path they will most likely experience pain in blow out of time and budget or worse like builder may go broke and do they have the experitise and are they securitized against these circumstances.
Informative and enjoyably paced series Enoch, thanks.
Thank you, an eye opener.
Have you considered writing a book titled BUSINESS OF ARCHITECTURE