When You Should Refer Customers to Competitors—and How to Do It

Simon J. Blanchard, Mahima Hada, and Kurt A. Carlson
Key Takeaways
What? Common wisdom says that sales professionals should not refer customers to competitors. Yet myriad surveys (and shoppers’ day-to-day experience) demonstrate that sales staff make specialist competitor referrals all the time. Surprisingly, these referrals can actually help them close deals with customers.

So What? A new study published in the Journal of Marketing explains how making specialist competitor referrals—telling customers they can purchase a secondary, non-focal product at a lower price at another merchant—shifts consumer psychology and makes them more willing to pay on the spot for the focal product. Why? Customers no longer worry they are overpaying for the focal product and perceive more equity in the exchange. 

Now What? Consider this counterintuitive strategy when you're aiming to get your customers to value your expertise and trust your brand.
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Common wisdom says that sales professionals should not refer customers to competitors when trying to close a deal. However, myriad surveys (and shoppers’ day-to-day experiences) demonstrate that sales staff make specialist competitor referrals all the time. 

But are these referrals effective? And under what conditions? In a new article in the Journal of Marketing, our research team shares insights from a new study on specialist competitor referrals that deepens understanding of this common, but poorly understood, practice. In so doing, we built on past research on equity theory, which has demonstrated that empowering customers with information about a product and its price increases their positive perceptions about the product, sales person, and merchant. 

To gain insight into specialist competitor referrals, we conducted a literature review, surveyed sales staff about their practices, and conducted four studies to build and test our theories with different audiences. We explored seller-customer interactions in multiple contexts, including scenario-based selling in an art gallery with fixed prices; a mattress store with negotiated prices; and a fundraising table, where customers were offered two small gifts in return for a donation to a charity.

In our exploratory study with 141 sales people across multiple industries, we discovered that 71% make specialist competitor referrals and that they can prove effective providing two conditions are met—the sales professional must share that a lower-cost alternative is available at a competitor store and justify the price difference by sharing how the stores are different. 

Making specialist referrals that meet these two conditions shifts consumer psychology, making them more willing to pay on the spot for the focal product. The reason why? Customers no longer worry that they are overpaying for the focal product (overpayment risk) and perceive more equity in the exchange. This mental shift can prove especially valuable in selling situations where there no easily available comparable sales example, such as with products that are unique, infrequently purchased, or on sale. 

Let’s use an example to ground this theory in real-life. A customer enters an art gallery to purchase a Rembrandt etching (the focal product) and also asks about frames (the non-focal product). The sales person tells the customer that the store offers frames, but that cheaper ones are available at a mass-market retailer because the gallery focuses on selling original art and prints. The customer feels better about buying the Rembrandt etching, even in the absence of recent sales data, because she feels there is equity in the exchange with the seller. The high and low prices for the non-focal product create a mental anchor of a good price for not only the non-focal product, but also the focal one. The seller’s willingness to sacrifice the lower-cost sale helps establish a “good” price for the higher one. Surprisingly, this sacrificial behavior not only motivates customer sales of focal products, but also often the higher-cost non-focal product. Our customer leaves the store with both the etching and the frame. 
However, if the seller fails to mention the stores’ different specialization, sellers do not receive a positive halo of equity exchange – and sales benefits do not accrue. 

Key findings include:
  • In the art gallery scenario, 55.7% of consumers were more likely to purchase a painting if given a specialist referral. Even when told of the higher cost, 9.1% were willing to pay for the frame at the gallery.
  • In the mattress negotiation scenario, participants who negotiated a second counteroffer were given a specialist referral at a lower cost. Some 29.71% more than the control group chose to buy the mattress when informed of a lower-cost bedframe elsewhere. 
  • A second, similar mattress negotiation measured the effect of the specialist competitor referral on increased perceived equity and reduced overpayment risk, with a 0.28 partial correlation. 
  • The next study removed the non-focal price justification, finding that providing only the referral without the justification did not increase the likelihood of purchasing the higher-priced focal product. 
  • Finally, in a field study, a specialist competitor referral increased the odds of receiving a donation by 69.64% and increased the donation amount by 59.80%. 
Our study found that salespeople who offer specialist competitor referrals using our two-step process were more likely to drive their own focal product sales without losing non-focal product sales. These insights can empower sales staff to take greater control of the sales conversation, using referrals for strategic advantage. 
While the internet is awash with pricing information, many customers find it challenging to know if they are getting good deals or can trust their sellers. Providing specialist competitor referrals correctly can help create win-win deals for customers and merchants. Not only do they encourage customers to consummate transactions, but they can build the trust and perception of value needed for longer-term relationships. In a brutally competitive marketplace, that can make all the difference. 


From: Simon J. Blanchard, Mahima Hada, and Kurt A. Carlson, “Specialist Competitor Referrals: How Salespeople Can Use Competitor Referrals for Nonfocal Products to Increase Focal Product Sales​,” Journal of Marketing (82) July 127-145.

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ABOUT THE AUTHOR:
Simon J. Blanchard, Mahima Hada, and Kurt A. Carlson
Simon J. Blanchard is Associate Professor of Marketing, Georgetown University (email: sjb247@georgetown.edu). Mahima Hada is Assistant Professor of Marketing, City University of New York (Baruch College) (email: mahima.hada@baruch.cuny.edu). Kurt A. Carlson is Associate Dean for Faculty and Academic Affairs, College of William and Mary (email: kurt.carlson@mason.wm.edu).

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