We humans hate to lose, in fact twice as much as we love to win. Use this psychological behaviour to keep customers and to win new ones. In short, Loss aversion is a powerful bias to use in your offering and marketing.
How does it work? The brain is wired to minimize risk. Losing something feels twice as bad as gaining the same thing feels good. That’s why we rarely sell stocks during downturns, stay in bad jobs or relationships too long, or end up paying for 5 sport channels. Missing important games you are used to see hurts. So we pay.
Loss aversion has two key consequences:
- We overvalue what we already have.
- We overestimate the risks of unfamiliar things.
That’s why money-back guarantees and trial periods are so effective. Once a customer has something and are getting used to it, they’re reluctant to give it up. Try Netflix for 2 weeks free? Hard to go back.
Another strategy is to push effects of decisions towards the future. 3 months payment free is a great teaser to do business now. And the best way to encourage retirement savings: have people commit a percent of future income increases, not of current salary which will be a very visual loss.
Loss aversion also explains brand loyalty in “high-risk” categories. When stakes are high (money, reputation), people choose the safest option. That’s why you should always lead with the premium model, equipped to the top – downgrading and de-selecting options feels like a loss. It’s easier to avoid losing than to gain something.
Loss aversion for better business
In high-risk categories, highlight the potential losses. That’s how SAP became a leading enterprise solution – few want to risk millions on downtime. Even in normal customer relationships, remind the customers what they don’t want to lose if they switch suppliers – rational benefits or emotional ties like the fantastic golf tournament.
Loss aversion starter kit
- How can your brand prevent customer losses (e.g., money-back guarantee)?
- How can you “deliver” your product before the customer commits?
- How can you amplify FOMO (Fear Of Missing Out)?
- Can you highlight the risks of a making the wrong choice to block competitors? Remember the famous “You never get fired if you buy IBM”
There is a lot of interesting opportunities by using Loss aversion. If you want to discuss how you can leverage it as a strategy, just reach out to ulf.vanselius@comprend.com