There’s a principle in psychology called the Recency Effect. It suggests that when facts and figures have been presented to us, we best remember those we heard most recently. The same is true of experiences. If you visit a restaurant 10 times, you tend to remember your most recent dining experience the best. It carries the most weight in your opinions of the food and service.
In marketing, many producers tend to focus on the most recent price action. This can have damaging effects to the psyche in a bull market when, as prices rise, producers focus on how the price today is better than it had been. In their quest to capture the top of the market, they pass on profit opportunities. Their focus on the most recent price action creates a habit of not selling.
Each leg up in price during a bull market leads to a change in emotion. Producers go from being cautious in the early stages, to confident and then to enthusiastic. As the bull rages, enthusiasm turns to greed and conviction. Why sell when you’re convinced prices will go higher, right?
In a bull market, too few producers are willing to sell when it makes sense. Everyone wants a higher price. For the record, I do believe you deserve and should capture as much price opportunity as possible. It’s crucial to capture opportunity so that you can build a cushion for when prices are low. After all, if there’s one thing you can predict about rising prices, it’s that they will eventually fall.
Why is it so difficult to sell when prices are rising? In a word, emotion. Producers get caught up in the moment. "Irrational exuberance" takes hold. That’s why it’s so crucial to develop marketing strategies ahead of time and pre-plan your decision-making. That way, you’ll have a well thought-out rationale for why you’re selling. Emotion won’t enter into the equation. Pulling the trigger and executing a sale with cold, calculating decisiveness will become the new normal.
Capturing as much price opportunity as possible does not mean selling at the top of the market every time. Only hindsight consistently gives you the market high. The best marketing approach builds the highest possible price average over time. To achieve this, you have to capture opportunity as it presents itself. This includes selling on the way up.
CAUTION: Selling in a bull market can open up a common emotional trap. Producers fall into this trap when they sell and then immediately afterward see prices rise. They become frustrated and deem the sale as opportunity lost. Many an epithet has been hurled at marketing over this oft-repeated scenario. When this occurs, producers are letting their most recent sale—just like the most recent meal at a restaurant—influence how they feel about their marketing.
Second-guessing overtakes rationale thinking. Was it wrong to sell? What is too early? These are not the questions to be asking. Instead, ask: Did I base my decision on prior planning and strategy or on emotion? Decisions based on emotion are bound to fail, even if luck prevails some of the time.
Decisions based on strategy should be viewed in the big picture. You can’t allow one poor, or perceived poor, decision to color your opinion of marketing. Remember that marketing success is achieved over the long haul with hard work and a thorough planning for all possible price scenarios. A negative reaction to having sold on the way up in a bull market often will be seen as positive when viewed through the lens of time.
In order to confidently sell in a bull market, and position yourself to both capture maximum opportunity and achieve the highest possible average selling price, you have to put strategy and discipline into your marketing. When you approach your marketing this way, one of your first accomplishments will be eliminating second-guessing.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at firstname.lastname@example.org.
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