Upselling as a CSM: The #1 upselling technique every CSM should know (#10)
What You Need To Know About Psychological Pricing
Trivia Time: Do you know which movie is based on the world's leading toy distribution company? (Hint: it's not Mattel).
3…2…1…
Did you get it?
Answer: The founder.
Another solid movie. It tells the story of how Ray Kroc built the McDonalds Franchise.
But get this…
Since the inception of the Happy Meal, McDonald’s has become the largest distributor of toys in the world. Each year, McDonald’s distributes 1.5 billion toys worldwide. Approximately 20% of all sales at the restaurants include a toy.
And speaking of McDonald’s, here’s what I got for you today:
I’m breaking down psychological phenomenon known as the decoy effect.
You and I will learn how to use this psychological trick that companies like McDonald’s use to increase our expansion revenue as CSMs.
What I’m learning:
Every week, I dedicate over 80 hours to learning or practicing CS best techniques so that I can distill it all into a <5-minute read for you.
Think of this newsletter as the friend you had in college who goes to all the lectures and takes detailed notes so you don't have to miss out on your fun while I do all the work.
Now, in my company, Account Managers are responsible for increasing expansion revenue.
We have team goals, but I don’t carry an individual quota. For other CSMs roles, this is different.
Some CSMs are responsible for everything, including upselling within their Book of Business.
So this week, I spent some time learning about the decoy effect from a psychology of marketing newsletter.
Dan Ariely is a leading figure in psychology and he used The Economists subscription page as a case study when discussing this topic.
The “decoy” is the Print Only version. It’s designed to get customers to view the “Print + Web” version as a bargain.
More customers purchase the Print + Web version, and the company increases its margin.
Here’s a tweet the captures the “why” behind this perfectly:
Take a look how McDonald’s does this too (you like my drawings here?) :)
Medium Fries are the decoy. The difference between small fries & the medium is $1.00 while the difference between large & medium is 0.80 cents.
Logically, a large should cost $3.79 based on the $1.00 increase from small to medium.
BUT with only a 80 cent increase, the perceived value of the large is huge, making it hard to pass up.
So, why should you care?
The next time you're trying to upsell a client, use the decoy technique to increase your chances of success. Here's how it could work for you:
1. Create three different package options for the client to choose from.
Your "small fries" option should be the client's renewal at their current rate.
Your "medium fries" option is your decoy. This is where you bundle in additional services or products that are slightly more appealing than your base offering, but not as good as your "large fries" target option.
Your "large fries" is what you're really hoping they'll choose. This could be a 3-year renewal, a bundle of multiple products or services, or anything else that represents a significant step up from your other two options.
2. Make sure the pricing for your "medium fries" is closer to the price of your "large fries" than your "small fries."
This creates an illusion that makes the "large fries" look like a much more attractive deal in comparison.
3. Selling is a team sport. Work with your team to put these packages together and present them to the client.
Having multiple people involved will help make sure that all bases are covered and increase the likelihood that the client will see value in upgrading to one of your higher-tier options.
Either option (medium or large) means they chose to upgrade their renewal. :)
2 cool things happened this week (I'm not good at noticing small wins when they happen in my life, so this is how I’m trying to get better):
1) The Head of Customer Success @ Hubspot recognized the stuff I’ve been writing and added some of their perspective on my previous tweet (how cool is that?!?!)
2) A writer I’ve been following for a few months with over 200k followers asked what NLCS was about
Here was my response:
And I quickly sketched this on my notes to capture NLCS visually:
I spend a lot of time making sure I write something that brings value to you.
The best compliment you could pay NLCS would be to share it with one person who would find this content valuable
Starting next week, I’ll be adding a “My Smart CSM Friend….” section to this newsletter whenever appropriate.
I just want to make it a habit to help you, and celebrate others more often.
I try every day to live up to this. I'm not perfect, but I'm getting better.
Reply back - how can I help you this week? :)
This week, you and I learned:
The psychological phenomenon known as the decoy effect.
And we learned how to use this psychological trick that companies like McDonald’s use to increase our expansion revenue as CSMs.
Ya boi / friend @ NLCS. That’s it for this week :)
P.S. If you know any Customer Success professionals who could benefit from this level of transparency, I would love to bring them into our small circle of people who care about Customer Success. Please feel free to forward this article and others from the NLCS (New Laws of Customer Success) universe to grow our tight-knit community one person at a time.
