Thursday, January 27, 2011

Talk first, sell later

Say I give you $100 which you need to share with another person, whom you have never met before. You determine the split. The other person can accept or reject the offer. If the split is rejected, nobody receives any money.

How do you split the $100? And if you're on the receiving end - what's the lowest offer you would accept?

It's called the ultimatum game. Any classic economist would assert that a rational human being would accept any offer that is greater than zero. After all, one dollar is better than nothing...

However, people are irrational (well, you might be rational, but all others are not).

Academic experiments show that 33%(!) of the splits offered in the ultimatum game are rejected.

Why? Because people perceive the split to be unfair.

Now what happens if we tweak the scenario, and let people chat before evaluating the split offer?

Researcher Al Roth conducted this experiment. Only 5% of the splits were rejected. The conversation improved "conversion" from 66% to 95%!

The point is that marketing is all about building relationship. As marketers or sales people, going directly "for the kill" would yield far worse results than gradually building relationships.

A question that comes to mind though: what if the discussions were carried out online? In Facebook? Over Twitter? Would conversion be higher or lower?

How does online relationship compare to offline relationship?