Did you study contract theory in school?
Me neither.
But maybe we should have.
Because there is a concept from contract theory that has some pretty obvious applications to what we do every day.
It’s called signaling.
It’s the idea that you can convey important information about yourself without actually saying anything.
The economists who came up with the theory like to cite an example from the job market to demonstrate how it works.
Imagine an employee who wants his employer to recognize his abilities and knowledge (and earn a promotion).
He could say he’s very smart and works hard.
But so can every other employee—even those who don’t work all that hard.
Talk is cheap, right?
So instead, the employee spends the time and money to earn a new credential like an MBA or a Six-Sigma Certification.
Not everybody can do that.
In theory, the employee’s new credential signals to the employer that he has additional skills and knowledge that others don’t, and therefore deserves the promotion.
You may have done this in your own career—earning certifications or degrees that demonstrate a unique ability that other people don’t have.
I hope you got a raise in return for your efforts.
But what about the products and brands we work on? How does signaling work for them?
So many ways…
Yesterday I was working on a new training project with a client. We were looking at a few competitors as we were brainstorming how we could stand out in a very crowded market.
One training course we reviewed was 16 hours long and cost $10.
I don’t know for sure, but I would bet that the presenter was trying to create an offer so good, that purchasing would be an easy decision.
What a deal, right?
Maybe not.
16 hours for $10 sends some pretty big signals…
That much content for so little money? It must not be good or the presenter would charge more. After all, two day seminars go for thousands of dollars.
And 16 hours of training? A buyer will need to set aside a couple of days to learn it all. That’s a huge commitment.
The problem here is that the actual signals potential customers get are the opposite of the signals the author intended to send.
This happens a lot.
Think about the signals you or your brand are communicating to your customers.
Price is perhaps the biggest signal. We learn early on that expensive = high quality while cheap = low quality. How is your product priced?
Availability is another. Sending a signal that something is rare or exclusive increases our perception of it’s value. Is your product easy to find? Should it be?
And then there’s packaging. The way your product is presented on store shelves or online can signal desirability, usefulness and a bunch of other things.
Usability is yet another. Products that feel good or naturally fit into our lives signal that we don’t have to work hard to get value out of them.
And what about expertise? There’s a reason why companies create blogs, ebooks, webinars and other information products. They are signaling a level of authority and expertise to their customers. Hey, that’s why I send out an email every week (you should read it too).
Of course, if we tried to identify all of the possible signals your product sends to potential customers, this would be a short book, not a blog post, so I’ll leave you with the following questions…
Does your marketing send the right signals to your customers? Are you sending the wrong signals by being too available (or not enough), charging too little (or too much), or by being too eager to please (or not helpful enough)? How can you improve your product or service so you send the right signals to your customers?
Something to think about.
One more thing: Signaling is a big part of getting your message right and communicating with your most profitable customers. Send the wrong signals and you attract the wrong customers—or none at all. If you’re not sure about the signals you’re sending, we should talk. More info here when you’re ready.
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