Organised Crime: A Business Model Validated by Nobel Prize Winners?

I was doing some research with one of our Small Fish clients last week and discovered something interesting. When faced with a future potential large loss, 70% of people will take the risk over a sure small present loss.

This goes some way to explain why it is that Sales and Marketing of electronic security services is seeming to be significantly less responsive to established sales and marketing activities when compared to other small businesses.

Here is where we started. We asked the question;

Does a home or business security system really reduce the likelihood of being burglarised?

The answer is a clear and unequivocal, yes. Studies revealed that homes and businesses with monitored security systems were between three and fifteen times less likely to be burglarised.

Sales and Marketing should be a no brainer!

1. Find out where such crime is highest (which is surprisingly easy to do as high quality real time data is available, free)
2. Then communicate the facts to the targets (in both criminal and marketing sense of the word),
3. Have a proven product and system…
4. Offered by a long term quality company with excellent local Word of Mouth,
5. Make sure price is inexpensive and competitive.

Now stand back and make the sales.

No chance, people are reluctant to buy until after they have been burgled- and then it just can’t be easier. I see how organised crime got going; first create the crisis then offer the defence (protection) and sales seem to just drop into place. It takes the chance out of the sales and marketing equation.

All this gave me cause for thought. Maybe we are all working on assumptions about human behaviour that are less than scientific, based on handed down wisdom rather than proven empirical data.

The answer came back not maybe but absolutely “yes.”

It’s a truism that it is easier to sell someone something they desire rather than some form of defence against something that would be good to avoid. It does not mean potential burglar targets don’t ever buy; just it is an uphill struggle to sell to them without a crisis stimulating their interest.

Enter Amos Tversky and Daniel Kahneman who worked together in the 1970’s to develop Prospect Theory, which aims to explain such irrational human economic choices. These are no blog based internet sales gurus, Kahneman received the Nobel Prize for the work he did in collaboration with Tversky on the subject.

It turns out we (humans) have a deeply seated cognitive bias and we do not behave in an economic rational way when dealing with risk and return. So for your enlightenment here is the answer (In its simplest form – go figure!):

I guess this is why we skipped over it when I studied economics and business.

Monitored security systems are risk-reducing investments in which the buyer pays a small ongoing amount to be protected from a potential large loss. Potential customers have a cognitive bias buried deep in the brain and are preprogrammed to gamble on the chance of a burglary. The payment of the small monitoring and installation fee is less appealing than the chance of possibility of a larger loss.

The solution is around how to build products and services that customers want and that give them a small gain now. The way ahead is to construct products and services which give immediate if even small satisfaction now and to emphasise on the marketing the sure loss, even if it is small, that will result if the purchase decision is not made now.

That’s what we are working on now.

I hope this gives you some room for thought if you are in a business where you propose to your customers a small ongoing risk reduction investment to protect them from a possible or potential large loss. If you are struggling maybe this is why.

Happy hunting.

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