The "PR Department" in Your Head

How did your company’s last software purchase go?

Probably something like this: Your buyer is the head of marketing. She has been told her marketing analytics infrastructure is inadequate. Her team is stitching together three different tools, the reports are unreliable, and her last board meeting included an awkward fifteen minutes where she could not answer a question about lead attribution. Yeah…it’s not fun.

So you both decide things need to change. You set a budget. Game on.

She scheduled demos with five vendors. The first demo is Tuesday morning. The sales rep is sharp, has done his homework, knows her industry, makes a joke about her last quarter’s earnings report (which she finds simultaneously off-putting and impressive), and shows her a dashboard that has a really beautiful dark-mode option. (…Yes, this matters. I’m not saying I judge you for using light mode. But I’m not saying I don’t judge you, either.)

By Friday, she has decided.

She does not realize she has decided. If you asked her on Friday whether she had picked a vendor, she would tell you no, she is still evaluating, she is still doing her due diligence. But she has decided. The decision was made on Tuesday morning, somewhere around minute fourteen of the demo, in some region of her brain she does not have conscious access to.

The other four demos happen the following week. They are formalities. She is now looking for reasons to confirm Tuesday’s vendor. Anything the other vendors do well, she discounts. Anything Tuesday’s vendor does well, she weights heavily. The two vendors who are objectively superior on most criteria are eliminated for vague reasons she will later describe as “fit” or “vibe.” (In fairness, I have ended 60-minute vendor presentations 10 minutes in because the sales people, from a very major worldwide software company, were clearly hungover and could barely string a sentence together.)

In week three, she begins building her business case.

She spends more time than you want to admit constructing an elaborate ROI spreadsheet to present to the CEO and the board. The spreadsheet has assumptions she has worked very hard to make defensible. It calculates a payback period. It includes scenario analysis. It is, by any measure, an excellent piece of analytical work. She is genuinely proud of it. She definitely does not want to be embarrassed in that room again. (Again…I don’t blame her. I’ve been her.)

She is also working backward from the answer. Every assumption was selected because it produces a result that justifies the vendor she already chose. Not deliberately; she would be horrified to discover this. She believes, sincerely, that she is doing rigorous analysis to make the best decision. She is in fact constructing the press release that will explain a decision that has already been made.

Daniel Kahneman wrote a book about this. The book is Thinking, Fast and Slow, what I think is the most important non-fiction book written this century. (If you ever read it, know that it’s both dry as toast and also the most compelling thing ever. It’s weird.)

The central argument is that we have two systems for making decisions. System 1 is fast, intuitive, emotional, and almost entirely unconscious. System 2 is slow, deliberate, logical, and almost entirely an after-the-fact storytelling apparatus.

Here’st the thing we don’t like to talk about: Most decisions are made by System 1.

System 2 is the PR department. In this case, doing double-duty for the typical meaning (Public Relations) and “Post-Rationalization.” Kahneman proved, through a very comprehensive group of experiments, that humans buy with their emotional right brain in milliseconds then justify that decision rationally later on with their left brain.

This is happening in every category, with every kind of buyer. In the 1980s, Chivas Regal Scotch broke out of a sales slump. How? They did not change the recipe. They did not redesign the bottle. They did not run new ads. They simply…doubled the price.

Sales exploded. Customers who had previously found the whisky unremarkable suddenly found it premium. The product was identical. The story they told themselves about the product was completely different.

Martin Lindstrom ran a study where he put people in an fMRI machine and gave them sips of wine from two glasses. He told them the first was a $10 bottle and the second was a $90 bottle. …Of course, both glasses contained the same $10 wine. However, the pleasure centers of their brains lit up significantly more for the “$90” wine. They confidently described the superior finish, the more complex notes, the better mouthfeel. They were not lying. Their brains were genuinely experiencing more pleasure. They were just experiencing pleasure they had been told to experience, not pleasure the wine had actually produced.

When your customer tells you they chose you because of your superior product capabilities, they are not lying. They are reporting, accurately, the press release (and post-rationalization) their brain produced to justify a decision their brain made before the analysis began.

The features they cite are real. And…they are a lie.

They are not the reason. The reason was made earlier, somewhere in System 1, by some combination of factors they will never have direct access to.

The head of marketing’s tuition for this insight (the one she will learn in retrospect, two years from now, when the vendor she chose has not solved the problems she bought it to solve) is somewhere north of $200,000 in software fees, eighteen months of opportunity cost, and the slow realization that the smarter choice was sitting in front of her in demo number four, which she eliminated because the sales rep was a little nervous and the dashboard looked dated.

She is not stupid. She is not lazy. She’s a really good marketer. And…she is human.

And here is the thing that should keep you up at night: her customers are doing this to her in exactly the same way.

* * *

In 2011, J.C. Penney hired Ron Johnson as their new CEO. Johnson had run retail at Apple, where he had presided over the launch of the Apple Store; one of the most successful retail concepts in history. The expectation was that he would do something similar for J.C. Penney, which had been declining for years.

J.C. Penney’s pricing strategy was a chaotic mess of constant sales, coupons, markdowns, and limited-time offers. The same shirt might be marked down 40% in week one, then 60% off in a “private sale” the following week, then back to 50% off as part of the storewide event. The “regular price” was a fiction nobody had paid in years. (Kind of like those sales at Joseph A Bank: “Buy one suit, get seventeen free!” Makes you wonder about the unit economics, doesn’t it?)

The customer was being manipulated into buying through artificial urgency and fake discounts. Johnson, an honest man in addition to a successful one, found the whole thing distasteful.

So he decided to fix it.

His new strategy was called Fair and Square Pricing. No more coupons. No more sales. No more theatrics. One honest, everyday-low price on every item. The math was straightforward: the new everyday price was lower than the old “regular” price had ever realistically been. Customers would pay less, on average, than they had under the old system. It was objectively better for them.

…You know what happened, right? Yep. J.C. Penney’s sales collapsed by approximately 25% in eighteen months.

Roughly $4.3 billion in lost revenue. Tens of thousands of layoffs. The company nearly went bankrupt. Johnson was fired. J.C. Penney still hasn’t recovered.

What happened? The customers did not want a fair, honest, everyday-low price. They wanted the feeling of winning. That feeling is real. That feeling is not a character flaw. Walking up to the register with a coupon and watching the total drop is a genuine small joy, the same one you get finding a twenty in last winter’s coat. Johnson did not just remove a discount; he removed a reliable little pleasure his customers had counted on forty times a year, and replaced it with a spreadsheet that was technically correct and emotionally bankrupt. The math was better. The feeling was worse. System 1, the feeling brain, won by a margin of $4.3 billion. (Ouch.)

This is the asymmetry that destroyed J.C. Penney. The customers were not gaining anything they could feel. They were losing the experience of winning. The loss hit harder than the gain. (Free Shipping works the same way, by the way. Lower prices by more than the shipping cost and you will not get nearly as many sales as higher unit costs and “free” shipping. People want to win.)

It’s called Loss Aversion: the pain of losing $100 is roughly twice as intense as the joy of gaining $100. It is also the asymmetry that explains everything you need to know about why your B2B customers are not switching to your better, cheaper, more capable product.

In B2B, your biggest competitor is almost never another vendor. Your biggest competitor is the customer doing nothing. Staying with the incumbent. Renewing the contract. Not switching.

The math on switching is almost always favorable. The new vendor is better, cheaper, faster, more responsive. The case for change is overwhelming in every dimension that should rationally matter. And yet (as every sales leader reading this knows) most B2B deals are lost not to a competitor but to inaction.

Why?

Because the customer is not just comparing your product to the incumbent’s product. They are comparing the gain of moving to your product (40% better) to the loss of leaving everything they already have. The workflow. The integrations. The training. The rep they trust. The bad-but-known bug they have worked around for three years. The dashboard their team finally got used to. The CFO who finally stopped asking questions about it. The risk that the migration breaks something they didn’t even know was load-bearing.

Kahneman’s asymmetry says that the loss is felt twice as intensely as the gain. So your 40% better has to clear a 2X threshold just to feel even. By the time it does, you are not at 40% better anymore. You’re at what feels more like 5%, and 5% does not get a CFO to sign a check.

This can make operators furious when they finally understand it: You can have an objectively superior offering and lose nine deals out of ten to a competitor that is, by every measurable standard, worse. The competitor’s only advantage is that they got there first. That is enough. The competitor is being graded on a curve that you cannot access.

Your customers’ favorite vendor is the one they already have. Not because the vendor is good. Because the vendor is incumbent.

There is one more flavor of this worth naming: Sunk cost. Companies that have invested $3 million in legacy systems they all hate will refuse to migrate to better systems because the migration feels like losing the $3 million. The $3 million is already gone. The money is spent regardless of what they do next. But the brain treats the legacy investment as something to protect, and so they protect it, by continuing to operate a system everyone agrees is broken. Economists call sunk cost a fallacy for a reason.

And yet…it’s how we’re wired. You have probably done this yourself. (Don’t be embarrassed. So has every CEO I have ever consulted with. So have I, for that matter, in approximately three of my last five major decisions.)