Bryan Caplan  

Why Does High-Pressure Salesmanship Work?

Bootleggers and Baptists: A Fe... Don Boudreaux on the Hockey St...
[Warning: Minor spoilers].

Just finished The Wolf of Wall St.   Though based on a true story, the ugly facts are usually easy to minimize: Most investment firms aren't run by stoned sociopaths, and most investment firms' customers make money.  But one ugly fact is hard to shrug off: people with a talent for high-pressure salesmanship often get rich.

Why does high-pressure salesmanship work?  Many economists will lazily invoke textbook asymmetric information.  High-pressure salesmanship works because... adverse selection.  High-pressure salesmanship works because... moral hazard.  High-pressure salesmanship works because... signaling. 

None of these textbook stories remotely makes sense.  Adverse selection, moral hazard, and signaling should all thwart high-pressure salesmen by making their potential clients wary.  "If your stocks are so great, why are you trying so desperately to sell them to me?"  "You probably get paid on commission, so I don't trust you."  "If you're so great at picking winners, convince me by giving me $500 in complimentary stock.  Call me back once my account doubles in value."  High theory aside, everyone knows how to avoid being fleeced by high-pressure salesmen: Utterly refuse to deal with them.  Hang up or walk out.

If standard economic theory can't explain the power of high-pressure salesmanship, what does?  Psychology, of course.  Some human beings make important decisions on emotional grounds - and most human beings dislike saying "no."  High-pressure salesmen carefully study and coldly prey upon these weaknesses.  The best high-pressure salesmen get rich - even though most of their customers would have been better off without them.

How can a libertarian say such things without having his head explode?  By the power of hypothetical reasoning.  High-pressure salesmanship and the human weakness that sustains it are hardly unique.  Human weakness is all around us - and whenever human weakness exists, there are craftier human being waiting to cash in.  Cult leaders cash in on believers' weakness.  Pick-up artists cash in on women's weakness.  Gold-diggers cash in on men's weakness.  Faith healers cash in on their patients' weakness.  Should government try to regulate all of these things?  No?  Then why should government regulate high-pressure salesmanship?

None of this means, of course, that I'm indifferent to these problems.  I'm all for voluntary remedies.  First and foremost: Urging everyone to consistently use the defensive strategies that everyone knows.  When you encounter a high-pressure salesman, cult leader, pick-up artist, gold-digger, or faith-healer, utterly refuse to deal with them.  Hang up or walk out.

Yes, you could call this "blaming the victim."  But when a wolf is eating sheep, preaching at the sheep is far more effective than preaching at the wolf.

P.S. Hope to see you at Capla-Con this weekend, where wolves and sheep alike can hone their social skills. :-)

COMMENTS (14 to date)
Hanako writes:

Bryan, I appreciate your provocative posts, but this one is nonsense. The notion of 'high pressure' salesmen is completely based in the liberal literary antagonism towards business and entrepreneurs. I have a hard time thinking of a single salesman in literature who is not a neanderthal con man or a washed up alcoholic.

I have recruited and worked with hundreds of sales people over my career. The sales people ranged from entry level retail associates to high power business to business sales executives earning seven figure annual bonuses. Like all groups there were laggards and stars, but the highest earners were never high pressure sales people. They were individuals who understood and met the needs of their customers. They operated with the highest level of integrity and respect. And they constantly worked to improve their craft.

We have all met rude abusive amateurs who think that being pushy and obnoxious is the way to make the sale. But that isn't how great sales people really operate.

While these are probably outdated sources, the easy reading books from Zig Ziglar, OG Mandino, Tommy Hopkins, and even Dale Carnegie, can give you an introduction into how real top performers get there, and I don't believe its by 'high pressure'.

Lee Kelly writes:
But when a wolf is eating sheep, preaching at the sheep is far more effective than preaching at the wolf.

I get the feeling that you haven't spent much time around actual sheep.

Bob Smith writes:

Most investment firms aren't run by stoned sociopaths,
Do you have good evidence of this? The most public counterexample is probably Bear Stearns. Google: ceo sociopath. See what turns up.

and most investment firms' customers make money.
Which doesn't mean the firms provide value to their customers. "Where are the Customers' Yachts" is likely the classic in the field.

Dylan Tredrea writes:

The thesis (as I understand it) is understanding high pressure salesmanship, but I think that analysis is starting from the wrong lens. The more interesting question is: why does high pressure sales work in some situations, but not others? Because mostly- it doesn't. Speaking from experience in car sales and running street promotion sales (handing out flyers in the street), there is really only one metric that matters in 'general' (not specialized 'biz dev') sales- the denominator. The most successful people simply pitch the most people. There really isn't much else too it (though of course there are edge cases/examples). High pressure sales doesn't work, because it increases your time on target too much, reducing your denominator, without much (any?) of an increase in conversion rate to make up for it.

That said, ID'ing the situations where it DOES work (return higher rewards- over time, than those that simply try to pitch the most people) and why- is a fascinating question, but it also runs into some problems defining terms.

Tom West writes:

High pressure may not be the most effective tactic, but that doesn't to say it doesn't work a all.

It's like street crime. Just because most criminals end up dirt poor compared to working for a living doesn't mean that it doesn't exist or that the costs to the victims are negligible.

liberal literary antagonism towards business and entrepreneurs

I suspect the antagonism in literature towards decent salesmen is based on the same antagonism towards safe, happy families and tame rational relationships - they're boring (to read about)!

mike davis writes:

What's wrong with the signaling/ sorting story? How about explaining it with a variant of the story used to analyze the Nigerian money scam? (I think its in one of the Freakonomics books but I haven’t gotten to the third one.)

Let’s suppose there is a small group of customers who won’t hang up the phone or slam the door and so if you persist in selling to this group, you will make a sale. The salesman’s problem is that he doesn’t know who these people are. He can’t spend a lot of time with each potential customer in hopes that they will prove to be part of the small minority who will eventually cave in. Starting off with an outrageous, high-pressure approach may be just the ticket—the people who aren’t going to buy get mad and slam the door very quickly, leaving the sales guy to go on to the next potential lead.

This doesn't mean that the income earned by high pressure sales people will be greater than sales guys who use other tactics--absent some barrier, wages should equalize. But it might explain why some specialize in this particular tactic. (And, of course, some of these guys will get lucky and make a lot of money. Given their flamboyant tactics, one might be seduced into thinking that there is something other than luck involved.)

Interesting anecdote: I recently heard about a firm that sells “investment opportunities” and solicits by making cold calls to a huge mailing list. (I don’t know if it’s a total scam, but that seems likely.) They hired a group of mentally challenged adults to do the initial calls—people who are totally incapable of managing even their own day-to-day finances. Once a prospect is identified, they are passed on to a more competent salesperson. Most people who get one of these calls will almost certainly hang up in less than a minute; it's instantly obvious that the sales person has no idea what he's talking about. But those who aren't turned off by the initial call are definitely worth the time of the real deal maker.

AbsoluteZero writes:

mike, exactly my thoughts. There are three variables, the conversion rate, the denominator, as Dylan put it, and the cost per try. You want to increase the conversion rate and the denominator, and decrease the cost per try. So-called high pressure tactics increase the cost per try, so it should be reserved for screened candidates. This is where "letting the weeds sort themselves" come in. Without letting initial cost per try go too high, clearly signal high pressure tactics (to the point of exaggeration), and only good candidates remain. Note that, if correctly and skillfully done, often it's not that annoying, especially if it's with the right candidates. Finding the right candidates quickly and cheaply is the key.

By the way, I did read Think Like a Freak. If you like the first two Freakonomics books, you will likely also like this one. It's a little different, and shorter. You likely won't learn much new stuff, but it's a quick enjoyable read nonetheless.

NZ writes:

I've encountered high pressure salesmen--they definitely exist.

I think it's because high pressure salesmen (they are overwhelmingly men) know that the sales pitch is a kind of confrontation, and they know most people, especially their particular targets, are non-confrontational, and are therefore not at all accustomed to confrontation. They exploit not just weakness in general, but the fight or flight instinct, which just as often manifests as paralysis.

jc writes:

Seems like we might first have to settle on operationalizing, or at least more carefully defining, what counts as "high pressure". Yes, the best salespeople typically don't push too hard or offend. They are often low key, and they do try to focus on filling client needs and improving their lives, as that's the best way to make sales. Yet even these salespeople apply pressure...they're just more subtle about it, e.g., casually and elegantly "assuming the close" after leading customers through a series of customer-benefit-based hoops that customers themselves jump through and close behind them.

The point is that if we don't confine ourselves to considering just the strongest stereotypes (e.g., wolves, boiler rooms, pushy used car salespeople from the movies, etc.), Bryan's main point does generally hold: many salespeople do apply pressure, and it does often work.

My first thought, before he let the cat out of the bag and theorized that lots of folks simply don't like saying "no", was of that scene from the American remake of The Girl With The Dragon Tattoo, where Stellan Skarsgård notes to Daniel Craig that people are funny...even when their own life is at stake, Daniel Craig prioritizes not saying "no", not "offending" Skarsgård, over possibly offending Skarsgård by declining his invitation to "come in".

(My second thought was that in addition to potentially exposing one fairly common aspect of human "nature", this may also be an illustration of the power of societal level "nurture", i.e., of informal institutions, of ideas related to appropriateness as drivers of behavior, etc., ala McCloskey, or North screaming that we need to examine the informal by examining extant literatures like psychology in order to explain the formal.)

Glen Smith writes:

Have never met a highly-successful salesperson who isn't high pressure. I'd guess its that high pressure tactics seem to work based on survivorship.

Clover writes:

Look at how some industries are regulated compared to others. For example, I know of a case of a farmer who leased his land to a gas drilling company. The gas drilling company representative told him the fee they were offering him was standard for farmers in the area, when in fact it was substantially lower. He signed the contract, and only later learned that he had been ripped off. But he was able to sue the gas company, the company telling him the fee was standard was considered fraud. I also know of a car salesman who regularly lies to people, telling them the standard or lowest possible price on a car is much higher than it is.

Libertarians, of whom I disagree with a lot, agree that fraud should be illegal. Would libertarians object to a regulation that said that if a potential customer asked a car salesman what the lowest possible price on a car is, he has to answer truthfully? From the point of view of the economy itself it seems like it would save everyone a lot of time and money that could be put to productive use.

George writes:

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Floccina writes:

Well government could certainly do a much better job of policing fraud.

Floccina writes:

BTW many of the best sales men especially in areas like insurance are themselves convinced that their customers will be much better off having bought their products.

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