Psych 101...Not Really!
Much can be said about beginning and growing a maintenance agreement program in your service business. Most articl
es or programs provide the “why” and the “how to,” (side note: CoolFront Agreements helps you manage the “how to”) but few discuss the important psychology surrounding maintenance agreements.
Below, there is an excerpt from my eBook, “It’s All Up from Here.” In the book I discuss flat rate pricing, maintenance agreements and digital technology for service businesses. Since we are focusing here on maintenance agreements, we’ll leave discussion about flat rate pricing and digital technology for another blog post. My focus here is the very different aspect of maintenance agreements, that is, the mental and emotional factors governing the sale and purchase of maintenance agreements.
Bear in mind, I am not an expert in the field of psychology. A couple of college courses hardly makes me qualified to give a clinical assessment of the actions of any person or group of people. However, as watered down as it may be, my knowledge and opinion are based on forty-five years of dealing with customers and getting to know a bit about people and how they think.
First a Bit about Maintenance Agreements
Important Points from “It’s All Up from Here!”
“Ken continued, “OK, before we conclude the maintenance agreement section, I want you to take away some key points.
First, your customers will benefit by having a maintenance agreement because their system will run at peak efficiency and they will be safe and comfortable and they will likely have fewer breakdowns over the life of the equipment. Regular inspection will also likely extend the life of the equipment.
Second, your technicians will benefit by working on equipment that is overall in better shape because it has been maintained regularly. The workload will level out because tune ups can be scheduled at off-peak times, so the seasonal spikes in the spring and fall will not be as drastic. There will likely be fewer night service calls among those customers with maintenance agreements because of regular maintenance. Customers in general will be more satisfied and less likely to complain. Technicians also have the opportunity to earn additional income by way of commissions for agreement sales.
Third, business owners will experience a more loyal customer base with customers purchasing more services and add-on and replacement equipment. Maintenance agreement customers are less likely to be price shoppers when it comes to buying new equipment. And once again, a loyal repeat customer base adds more operating profit and higher value to your business should you decide to cash out.”
The benefits of a maintenance agreement program discussed above, and the impact of implementation of an agreement program give you a perspective on the discussion that follows. The discussion below deals with:
- Customer buying process in the internet era
- Customer loyalty
- Customer understanding
- Employee attitudes when dealing with customers
- Customer attitude about paying for service.
Notice the word “customer” appears in every bullet point. That’s because to understand what you need to do, you need to understand the customer. Once you understand the mindset of the customer, the psychology of the selling and buying maintenance agreements or any other product or service becomes much easier.
Understanding How Customers Make Purchases
- Today, nobody wants to be sold anything. However, customers want to be educated. Consequently, when customers (yourself included) are contemplating a purchase they first go to...you guessed it...the internet. As you know, searching any item or subject on the internet can return thousands, if not millions of search results.
- Customers complete their own research to become knowledgeable about the product for which they are shopping. The more they learn, the better prepared they are to buy.
- Once educated, customers then determine, generally from an internet search, who can fulfill their needs. Regardless of whether it’s a product or service, their search moves to who can deliver.
- Then they compare prices. Once they find an acceptable price, they then spend their money.
In this process, the psychology of the customer is, “I’m in control. Perhaps “just a touch” of anankastic personality disorder. (By the way, I didn’t know that term either, until I did some research).
What Determines Customer Loyalty
Most businesses will tell you that customer loyalty is a thing of the past. That’s partly because of the way customers shop. Online searches return so many results, a customer has a plethora of options. So many choices can create an issue for your company.
If your customers surf the internet for information on maintenance agreements, will your company show up in the search results? If your answer is “no,” consider what may happen if your competitors are displayed. Obviously, you have a potential problem that may result in a decline in your customer base.
“Loyalty” as defined in a Google search is, “a strong feeling of support or allegiance.” Google defines “narcissism” partially as “extreme selfishness.”
Today there appears to be more extreme selfishness than loyalty. However, loyalty can be earned by educating your customers about the value of a maintenance agreement and then following through to deliver top-notch service when promised.
Become Their Educator
As mentioned, customers seek information about the products and services they need, mostly through the internet. However, you can “get into the customer’s mind” and become the go-to source for information by developing a content strategy and posting information on the internet.
Creating content dealing with subjects that are pertinent to the needs of your customers that also tie back to the products and services you offer, can help you grow your business.
By blogging and tweeting about the value of maintenance agreements you set your company up as the subject matter expert. By having a strong presence in social media combined with a monthly newsletter, your customers gain knowledge they may be seeking. Consequently, instead of searching the internet, they may first turn to your blog or website for information. As a bonus, gaining followers can translate into gaining customers.
What about the psychology of this position? Well, your role changes from only a trusted service provider, to first, a trusted advisor and then a trusted service provider.
You may serve in the role of “mentor” as customers search for knowledge.
Training and the Psychology of Relating to Everyday Life
Training your staff on how to sell maintenance agreements is more important than offering a spiff (money) to sell a maintenance agreement.
Check out a 2013 article that appeared in The Harvard Business Review,
Does Money Really Affect Motivation? A Review of the Research
By Tomas Chamorro-Premuzic, APRIL 10, 2013
“Even those who highlight the motivational effects of money accept that pay alone is not sufficient. The basic questions are: Does money make our jobs more enjoyable? Or can higher salaries actually demotivate us?
Let’s start with the first: does money engage us? The most compelling answer to this question is a meta-analysis by Tim Judge and colleagues. The authors reviewed 120 years of research to synthesize the findings from 92 quantitative studies. The combined dataset included over 15,000 individuals and 115 correlation coefficients.
The results indicate that the association between salary and job satisfaction is very weak. The reported correlation (r = .14) indicates that there is less than 2% overlap between pay and job satisfaction levels. Furthermore, the correlation between pay and pay satisfaction was only marginally higher (r = .22 or 4.8% overlap), indicating that people’s satisfaction with their salary is mostly independent of their actual salary.”
Stranded on the side of the Road
So if money is not a compelling motivator, what is?
Fear is a great motivator in humans. I’m not speaking here about frightening your staff into selling more agreements. I’m speaking of the fear of the unknown and the fear of a potential uncomfortable situation customers may face if their comfort system breaks down.
“Fear is a powerful and primitive human emotion. It alerts us to the presence of danger and was critical in keeping our ancestors alive. Fear can actually be divided into two stages, biochemical and emotional. The biochemical response is universal, while the emotional response is highly individualized.”
Does Fear Motivate?
Let’s look at using a concern that most people face, the fear of an automotive breakdown. How strong is that fear? Actually, it’s pretty strong. It causes people to spend tens of thousands of dollars repairing and replacing automobiles just to avoid breakdowns and to ensure safe travel.
Admittedly, before cell phone technology became a way of life, having a broken-down car used to be much more stressful. Even today, a car that won’t go is totally frustrating. And everyone can relate to that.
Part of educating is not only providing information, but drawing a student (the customer) into a thought process that allows the student to receive your message.
When your employees are discussing the value of a maintenance agreement with your customers, bringing real-world situations to mind can do much to help them make the sale.
Asking questions, rather than dumping information on your customers, can be an effective way to bring your customers to your way of thinking and to purchasing a maintenance agreement.
Your conversation may go like this:
“Did you ever have a car break down? Do you remember the sinking feeling you had? The thoughts pour out in multiples...Got to get the car off the road so you and the car don’t get hit. Can’t get to where you’re going on time. Need to call the others to let them know you won’t make it. Need to get an auto mechanic to help you. It’s going to cost you money” and on and on.
Once you have the customer placing themselves into the scene, switch it up on them.
“Did your furnace or air conditioning ever break down? If so, do you remember your stress level? No heat...kids in the house...maybe frozen pipes...waiting for service...it’s going to cost you money.”
When you have the customer thinking about a car breakdown it’s a short leap into their home. You should transition the customer from the broken-down car on a dangerous highway that most everyone can relate to, to a broken-down furnace in a cold house.
Is that psychology, just good sales or a little bit of both? Maybe both.
The point is, a maintenance agreement will ease customer concerns about breakdowns, thus eliminating the fear of the unknown. And, that should be made easier by citing the points made above from “It’s All Up from Here!”
What Do Your Employees Want?...Happy Customers!
As everyone knows, going to work everyday can be a grind. Interestingly, baby boomers, gen-xers and millennials by way of the times in which they were raised look at work very differently. However, regardless of an employee’s age or mental approach to work, all employees share the common interest of wanting to serve and maintain happy customers.
Because it makes work a lot easier. Certainly, there is nothing that is more exasperating and frustrating than a disgruntled customer.
Selling maintenance agreements provides better service by way of a more efficient system and fewer breakdowns. That should result in happier customers and that makes going to work a lot easier.
Paying for Service
Remember the Fram Oil Filter Man on T.V.? “You can pay me now or your can pay me later?” His message was a derivation of the old adage, “An ounce of prevention is worth a pound of cure.” Change the oil in your car and use a Fram oil filter or replace the engine...it’s your choice.
When it comes to paying for maintenance agreements a bit of psychology really helps. The old school of thought was to bill all maintenance agreement customers in January to bring an influx of cash into the company at the start of the calendar year. The cash would help get the company through the first quarter. However, as times have changed and maintenance agreements have become more expensive, it has become harder for customers to pay that bill, especially following the holiday season.
Today, it makes more sense to collect monthly by way of a recurring charge to a customer’s credit card. Here’s why. A customer may have to think long and hard about coming up with $219 cash, let’s say, but will likely not think twice about paying $18.25 per month on their credit card statement. In each case you collect the same amount of money.
Here’s another excerpt from “It’s All Up from Here!”
“Oh, and one more important point. We charge for maintenance agreements monthly to make it easy on our customers. Our credit card payment processing company allows us to enter customer credit cards into the system and set up recurring transactions on the same date each month. We don’t store any credit card information, it’s all PCI compliant. The advantage is, instead of charging a customer say, two hundred nineteen dollars a year, all due and payable at once, we charge just eighteen dollars and twenty five cents per month. Customers really like the low monthly payments because it helps them keep their system maintained and running efficiently and they can budget their money better.”
Billy asked, “What happens if you’ve completed a tune up on a customer’s system and they discontinue their agreement before you have been paid in full?”
David replied, “Well, it does happen on occasion. We provide the customer a copy of the invoice that displays the value of the work performed when we complete the work. If the customer makes just a few payments and then discontinues, we discuss with them, usually by phone, but sometimes through email, the remaining balance from the last service rendered and ask permission to bill their credit card for the remainder. Most customers agree to that with no problem. We collect our money and then we discontinue charging their credit card. It works really well. If they refuse to pay, we note that fact on their account and if they ever call back for service, we then discuss the need for them to pay the old balance they owe us.”
A small recurring fee is both more affordable and more acceptable to consumers looking to keep their equipment running at peak efficiency and ensuring their warranties remain intact.
To sum up:
- Understanding the mindset of how customers make purchases today, that is “how they think before taking action,” is critical to selling maintenance agreements.
- You will need to be the thought leader delivering information on maintenance agreements. Customers will “feel an affinity” with your company.
- Customer loyalty will be gained when your company is recognized as the subject matter experts. Educating is a way to “cement a bond” with your customers.
- Your customers will be more likely to buy a maintenance agreement from employees that are trained on how to relate and communicate through “drawing customers into a message” that touches their emotions.
- Customers will be more likely to buy if they have the option of paying for their maintenance agreement on a monthly plan using a credit card. Monthly credit card payments take the “strain out of the buying decision.”