Game Theory in Sales

My son competed in an online chess tournament while I was preparing this blog post. As usual, we had a coaching conversation before the first game that went something like this:

Amazingly, unlike every other time I’ve provided pre-game coaching, he actually listened, played slowly, and won all his games. Maybe calling it “game theory” made it sound more awesome than previous “mom advice.”

Last week we introduced game theory, the concept of strategizing based on our understanding of other people’s and organizations’ expected behavior. Game theory is useful in many fields, ranging from actual games like chess to any situation where two parties are making decisions in competition with each other.

In sales, your goal is to identify prospects who can become valuable customers and then persuade them that buying from you will also bring value to them. An understanding of the broad principles of game theory is just one part of your behavioral psychology toolset. (Don’t worry—you don’t need to get deep into the mathematical modeling in order for it to be helpful.) Game theory and related concepts can be extremely useful tools for sales professionals.

GAME THEORY AND THE DISCOVERY CALL

As we’ve mentioned many times, the greatest risk in sales is a lack of information. Your first opportunity to really grow your supply of information about a prospect and their needs is in the discovery call, so it’s important to make the most of that time.

Being ill-prepared for the conversation is a death sentence to information-gathering, as well as to the other opportunities presented by the call like rapport-building. It’s hard to know exactly how a prospect or client will respond to what you say or ask in a discovery call. However, that doesn’t mean that it’s impossible to prepare.

Game theory is often connected with another psychological concept, “theory of mind.” This is the awareness that other people have their own thoughts, feelings, and knowledge that is different from your own; for example, knowing that someone on a voice call cannot see the same things that you see.

Theory of mind is a foundational skill for empathy and emotional intelligence. You wouldn’t want to say “Isn’t it a beautiful day!” to a person whose office just got damaged in a hurricane, even if it is in fact a beautiful day where you are. You can anticipate that they are probably upset and experiencing bad weather.

Theory of mind helps skilled sales professionals put themselves in the shoes of the person they are talking to. Think about things like:

• What does this person know about my company?
• What sort of goals does a person in their role usually have?
• What needs does a company like theirs usually have?

Game theory can help you use this perspective to have a deeply successful conversation. The basic relevant insight is that you can prepare by anticipating likely responses to what you say. When you are mapping out all possible responses to your questions and planning how you would reply, you are creating what’s called a “question tree.”

Let’s say I ask a classic Velocity question, “When do you want to have the software implemented by?” What are the most likely responses? Lay out at least three that you have seen many times before. They might look something like this:

• A date that is unrealistically soon
• A date that is reasonable
• “I don’t know”
• “Never—but I am required to by x date”

A well-prepared sales professional then develops responses to each type of answer that comes up frequently. The response should be a thoughtful question that shows you heard and understood them. For example, a person who gave the fourth response gave you the information that they have negative feelings about the sale, but must buy something. Be the empathetic sales professional who shows you understand how they feel, rather than simply charging ahead with a question about timelines.

If you would like more details on question trees and how to practice them, you’re in luck. We have an entire blog post dedicated to them. Devoting attention and practice to anticipating your prospect’s likely responses helps you to guide conversations much more effectively.

GAME THEORY AND THE DEMO

Once again, game theory works together with theory of mind to help ensure successful sales demos. Now that you’ve had the discovery call, you can develop a much clearer picture of the knowledge and motivations of the people to whom you’re selling.

One of the greatest mistakes salespeople make is spending prospects’ valuable time talking about features they are not interested in. As you prepare your demo, think about what it showcases. Most organizations do not build the demo from scratch for each buyer. Therefore, there will be information that may be more or less interesting for each prospect. How do you highlight the information that is most relevant? How do you avoid irrelevant information becoming a distraction?

I watched a demo on a software product that helped financial institutions navigate regulations in many different markets. The salesperson had selected a number of regulations for the demo, one of which was focused on Singapore. Now, Singapore is a major banking center, but most US financial institutions are not very focused on Singaporean regulations. Because the salesperson had not thought about who would be viewing this demo, the inclusion of Singapore had the potential to be a distraction.

After considering the perspective of the prospect, be sure that your demo can cater to their expected responses. Will you be able to demonstrate the features they are most likely to ask about? Practicing your presentation and being prepared to answer common questions is essential in order to be able to demo with confidence. Your confidence will enable the prospect to be confident that the product will work well for them, too.

GAME THEORY AND STRATEGY

The classic article on game theory and business strategy, Adam Brandenburger and Barry Nalebuff’s 1995 “The Right Game: Use Game Theory to Shape Strategy,” discusses how the prisoner’s dilemma affects pricing strategy. The article describes a situation in newspaper publishing in which one publisher used a drastic price drop to send a message to a lower-priced competitor. If both major competitors try to gain market share by reducing prices, it is a race to the bottom. Eventually, no one will be making any money. The message was heard by the lower-priced publisher. By cooperating to compete on factors other than price, they were able to retain value.

Game theory is also extremely relevant to retail. Leaders need to decide if their sales strategy incorporates both online and brick-and-mortar sales, and how to balance those two streams successfully. Whether it is by one entity managing both channels themselves, or through partnerships between retailer and manufacturer, researchers have used game theory to identify optimal strategies.

DELIVERING VALUE

As it turns out, anticipating the next steps of your customers and competitors is essential to preparation, successful sales conversations, and effective sales strategy. Behavioral psychology, especially game theory, demonstrates that insights from our expectations about others’ behavior guide optimal competitive and cooperative strategies. Those insights also help sales professionals demonstrate relevant value propositions and gather information while putting prospects at ease.

Role plays are a great example of applied game theory. To learn how to make them a more effective exercise, contact mastery@maestrogroup.co.