We human beings are more than just rational logic machines. Economics, the study of decisions that affect the financial well-being of individuals and societies, describes how people make choices under conditions of scarcity. But observing the way our minds work has lead academics to modify traditional economics by adding principles that define exceptions to the otherwise logical rules that we supposedly use when making choices. The field of behavioral economics is becoming an increasingly popular way to reconcile economics to actual human decision making.
In that vein, I question the effectiveness of “client appreciation” as a form of marketing. This seems particularly notable in situations where a business person, who is an expert in their field, is also responsible for their own marketing. As an example, think of real estate agents. I pay a real estate agent to present my house for sale and find buyers. I expect most agents are not expert in marketing. When I first moved to Calgary, we bought a house with a real estate agent and we’ve been on his marketing list since then. Each year, he sends us market updates and a small gift, such as a first aid kit, a cooler bag and a backpack.
This struck me as a little incongruous, but I could never put my finger on the disconnect. Then I read an article that described two different modes of decision making. One is financial, the other is social. Like mental accounting, in behavioral economics, we maintain separate “accounts” in our mind for social functions and for financial functions. To use the example of the real estate agent, he worked for me not as a favour for a friend, but because I hired him to perform his professional function. Therefore, the market updates make sense, in relation to his professional work. The gifts, on the other hand, cross the divide between financial (work-related) thinking and social (favour-based) thinking.
Marketers talk about the “powerful force of reciprocation.” But it still must respect the boundaries of social and financial thinking. For example, if my dentist asks me to floss, I’ll take it under advisement. If he gives me a new roll of dental floss, I feel like I should reciprocate by using the floss. This works, because he’s not asking a favour, he’s giving his professional advice and the gift fits in with his professional duty. On the other hand, mutual fund sales reps will sometimes phone and send a small gift to say thank you for a significant order. I always chuckle and think to myself, “I didn’t place the order to be your friend. I placed it because I felt it was most suitable for my client’s needs.”
Last week, we held a barbeque at our office. We invited all our clients and everyone had a very enjoyable time. However, fewer than a quarter of our clients attended. It occurs to me that the people who came are mostly the ones who we also see socially. Further, we had investment managers in attendance. Investors who wanted to talk with them about their method got some financial value from the event. Those clients would probably not have attended otherwise.
The only time I have given client appreciation gifts is at Christmas. It’s common for us to receive gift baskets from companies that we support, not to mention that it’s always a pleasure to receive chocolate. However, I felt awkward giving gifts to my best clients. Now that I reflect on it, I realise that those gifts are unrelated to our professional relationship and cross into social territory. The best thing I can do for my clients is to professionally discharge my responsibilities, and that’s the true basis for our continuing relationship.
Everyone has both social and financial sides of their thinking. When I meet with clients, it’s important to be interested in them as people, and understand the social influences that affect their financial needs. However, I am not a close friend of the people I serve professionally, so I choose not to engage them with social gift-giving. Instead, I do everything I can to competently serve them in a professional manner. If they ever have to choose between working with me or another advisor, I expect they’ll make their decision based on who is more professionally competent, not who gives better gifts.
What is your experience with receiving gifts from people you hire? How does your company give gifts? Does this separation hold when offering money to a friend?