October 29, 2017

Selling to your own wallet

Alice is a sales clerk at Tiffany & Co. She works part time and makes about $10 per hour. Virtually all of her income is spent on groceries, rent for her studio apartment, and making the minimum monthly payments on her three credit cards.

Bob is the CEO of a privately held automotive manufacturing and distribution business. His salary is $750,000 per year. He owns a large home in an upscale neighborhood. He owns three luxury cars, all of which he bought with cash.

Bob’s 25th wedding anniversary is approaching and he doesn’t know what to get for his wife Carol. Carol is an avid knitter and owns a popular yarn store but Bob can’t imagine any good knitting related anniversary gifts.

Since 25 is traditionally the “silver” anniversary, he decides to go to Tiffany & Co because he knows they specialize in silver jewelry. Bob has $10,000 budgeted for the gift and he assumes that Tiffany will have some items in this price range.

Bob walks into his local Tiffany location and is greeted by Alice. She asks what he’s looking for and he tells her, “An anniversary gift for my wife. I was thinking of something in silver since it’s our silver anniversary.”

Alice shows Bob some of their popular jewelry items in $1,000-2,000 range. This is a real turn off for Bob. He’s not interested in anything that inexpensive. He tells Alice that he is “thinking of something a little nicer.”

Alice shows Bob some jewelry in the $3,000-$4,000 range. As she does this, she continually makes comments like, “This ring is pretty, but I really think the $1,000 one I showed you first is a much better deal.”

This goes on for some time. Bob starts to feel like his time is being wasted. He knows he’s going to spend a lot more money than this, but he feels it would be gauche to say, “Can you just show me the ten thousand dollar stuff?”

What’s going on?

What’s going on here is that Alice’s idea of an appropriate budget for a 25th anniversary gift is about $1,000. This is based on her personal biases about value. To her, a $1,000 anniversary gift would be amazing.

I have heard this phenomenon called “selling to your own wallet”. i.e., When a seller down-sells a buyer because of a large income disparity between the two.

A dollar is worth more to Alice than it is to Bob. The idea that someone would spend $10,000 on an anniversary gift simply does not compute for her. In fact, the suggestion that someone would spend that much actually makes her angry because it seems horribly wasteful.

A better approach

A more effective approach for Alice to take would be to recognize that what she thinks is a reasonable amount to spend on an anniversary gift is irrelevant.

The only thing that matters is what Bob thinks is a reasonable amount to spend on an anniversary gift.

So... Alice could come right out and ask:

“How much would you like to spend?”

Or if she wanted to be a bit more tactful:

“What did you get her last year?”

If Bob says something like:

“A Porche.”

...then Alice could safely assume that the budget for this year’s gift is significantly higher than $1,000. If Alice digs a little deeper and finds out that Carol is an avid knitter, she can probably sell Bob on a $9,000 ball of yarn.

Moral of the story

When you’re talking to a buyer who probably makes an order of magnitude more money than you do, be careful not to sell to your own wallet.