Successful marketing isn’t just about telling people what they might gain. It’s also about understanding what people might fear losing by making the choices you need them to make. This is important because losses have a bigger behavioral effect than gains.
In this article, you’ll discover:
- That successful marketing isn’t just about telling people what they might gain, it’s also about understanding what they may fear losing in choosing your product or service
- That this is important because the prospect of a loss has a bigger behavioral effect than the prospect of a gain
- A list of potential losses that may affect choice that have come out of dozens of workshops and research projects
InsideBE is the largest behavioral economics and consumer psychology hub for marketers, sales people, and business professionals alike.
In our piece: “How to understand what might be stopping people from making the choices you need them to make”, we touched on how critical it is to understand all of the barriers or headwinds that might make it difficult for customers or potential customers to make the choices or embrace the behaviors you want.
And just like how focusing on “why people won’t” rather than “why people will” is counterintuitive to us as marketers and humans, so is thinking about the potential losses that could sneak up and undermine your efforts to convince customers of all of the benefits and gains your product provides.
We are roughly 2.5 times more sensitive to losses than we are to gains of similar size. A message framed as a potential loss might therefore be more persuasive.
This phenomenon, known as loss aversion, is one of the basic principles of Behavioral Economics.
Loss aversion is also one of the first and most widely known biases that the “founding fathers” of Behavioral Economics, Daniel Kahneman and Amos Tversky, studied (it’s worth noting that Kahneman and Tversky’s work on Prospect Theory, the overall theory that Loss Aversion falls under, resulted in Kahneman winning the Nobel Prize for Economic Sciences in 2002).
Losses Loom More Heavily Than Gains
Here’s how loss aversion works. Rationally, the negative behavioral impact of losing $100 should be of the same magnitude as the positive behavioral impact of gaining $100. After all, $100 is $100. But in many experiments, losing an amount is shown to have twice the psychological impact of gaining the same amount.
Losing an amount is shown to have twice the psychological impact of gaining the same amount.
Sparky Anderson, the famous baseball coach, was scientifically correct when he said, “Losing feels twice as bad as winning feels good.” And because it feels twice as bad, we tend to intuitively do all we can to avoid behaviors and decisions that may result in a loss.
The Endowment effect
When people own something they value it beyond its objective value. Frame your message in ways that make customers feel like they already own your product, discount or benefit.
Marketers use loss aversion and the related scarcity and endowment effects frequently, particularly as conversion tactics. These include limited time offers, booking systems that tell you “only two seats remaining at this price,” and offers that flip the switch in order to avoid potential loss by saying “you’re losing $20 a month by not switching to our service plan.” All these are powerful approaches that are proven to work.
And a Demotivator
But if we’re trying to change behavior, whether it be for customers, potential customers, or employees, loss aversion may be a key tool not just for getting people to do something, but also for understanding why they might not. The prospect of a loss that’s not always so obvious and won’t necessarily emerge in traditional consumer research can be a particularly stubborn barrier or headwind.