Last week, I returned North to work with a group of agents who have already increased their fees by 20% this year, (and across their network have either maintained or increased market share), to help raise them by a further 20%.
Now some years ago I worked with Professor Robert Cialdini and his team to create their “Principles of Persuasion” workshop for the UK and Europe, taking each of Bob’s six levers of influence, plus the overarching booster, and I took the agents through each of these and how they can be applied in estate agency.
During the session I was reminded of a story I heard directly from Bob, which he also wrote about in his bestselling book, “Influence”, and the feedback from the agents present was that this helped them to understand why reducing fees can be fatal. So I thought I’d share it with all of you as well.
Bob is Regents’ Professor Emeritus of Psychology and Marketing at Arizona State University where he researches human behaviour and in particular how it’s influenced by factors that at first seem counterintuitive and yet, on investigation, make perfect sense. One day, he met up with a friend who had a jewellery business and she told him how a major issue she’d had was resolved by a mistake.
The jewellery store specialises and only has individually designed pieces and collections, mostly by local artists. One range that caught the owners eye used turquoise as the principle stone and she was so taken by it that she purchased the entire collection. Three months later not a single piece had sold. Every trick in the retail book had been used, special displays, pieces on show by the till, staff wearing them and incentivised over and above other products. In exasperation, on the eve before going on holiday, the owner wrote a note for the team instructing them to adjust the price by 1/2 for the whole range and, when she returned two weeks later, was relieved to find that every single item had been sold, albeit with a considerable financial consequence.
At first this seemed a simple lesson in pricing correctly and how personal tastes and preferences can influence a poor commercial decision. However, when the store owner reviewed the books in detail, she discovered that rather than being sold for half price, the jewellery had actually sold for twice the original asked! The team had misread her instructions and actually doubled the prices.
Cialdini’s research suggests that most people have an expectation of the level that many products and services should be priced at and when something is out of kilter with their perception it causes suspicion and doubt. My contention is that this applies to estate agency. Sellers expect to pay 1.5% or thereabouts, landlords 10-12%. and when agents discount by a third or more it doesn’t feel right and causes them to look further. If, as sadly is too often the case, they discover the agent actually isn’t offering anything over and above the much cheaper new models, then their purchasing decision will come down to price. But if they can clearly see a valid reason why a traditional agent’s fees are 2X or more, and so long as that reason is relevant to them, they will pay the extra. This is true for hotel rooms, watches, bottles of wine, cars, solicitors, accountants, eye surgeons – it applies to every single product or service that has components that differentiate, even if these are minor compared to the main proposition.
I’ve read predictions on the industry news forums that a lot of estate agencies will go out of business over the next year or two as a consequence of reduced number of transactions and issues such as the impending tenant fee ban. In my opinion, these are serious threats, but they pale by comparison with reducing fees which I suggest will be the principle reason agents go under. But there is an alternative, and as several of my members will testify, it is possible to trade profitably, indeed the firm in the North is just one of several I’m working with who are on track for record profits this year – and it starts by charging appropriately.
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