What Are Examples of Loss Aversion?

The Upfront Analytics TeamEducation, StrategyLeave a Comment

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4 Ways to Utilize Loss Aversion

Perhaps the most succinct example of loss aversion theory can be seen in casinos around the world. There, fun-seekers and hardcore gamblers alike all follow the same pattern: The first round they play–be it blackjack or slots–is to win. The second round? It’s to recoup losses.

Loss aversion theory teaches that people would rather avoid a loss than reap a reward. And in marketing, it’s a powerful tool that can inspire purchases for the right demographic. By reminding customers that they could lose out of they don’t “act now!” or complete a purchase is much more effective than even offering added benefits for purchasing. Make loss aversion work for you by working in one of the following tactics into your next campaign.

  1. Creating Ownership

When customers feel like they actually own (or have ownership) in an item, they’re more likely to hang onto it as their belonging. Consider the tag line for any great infomercial: Try it for 30 days and if you don’t like it, send it back! It’s a strategy that has been used not only as a way to remove buying risk, but to create ownership with the buyer. When the 30 days of the trial period are up, sending the item back feels like losing, and consumers are more likely to hang onto a product. It is, after all, theirs to keep.

  1. The Art of Scarcity

When consumers feel like they’re missing out, they buy just to avoid being the loser. That’s loss aversion at its finest: When an individual scrambles to buy an item simply because he or she doesn’t want to be left without. Online retailers are especially adept at creating a sense of scarcity by showing exactly how many items are left. You might be shopping for a new pair of shoes and when you choose a size and color, you see text pop up: “Hurry! Only 2 left!” This makes you feel anxious and you’re more likely to buy to avoid missing out on the shoes you want.

  1. Gift with Purchase

Imagine you’re at the drugstore and you’re buying a bottle of shampoo. You see that your favorite brand is having a promotion: One bottle is 20 percent off, but one bottle is the regular price, but it comes with a free travel conditioner. Loss aversion theory tells us that you’re more likely to choose the bottle with the free gift, even if the value of the gift is less than that of the discount. That’s because you don’t want to miss out on the chance to get a free gift, no matter the value. What’s more, a free gift feels more tangible than a discount, making consumers feel like they scored a deal with their decisions.

  1. Loss Analysis

Finally, one of the most effective loss aversion marketing strategies is simply outlining the sense of loss a consumer might feel if he or she doesn’t make the purchase. Often, this strategy centers on not offering just the product in question, but offering it beside two inferior products. By highlighting an inferior product’s weaknesses–say, soap and water versus a new antibacterial cleaner–consumers associate purchasing the new product with an increase in quality of life. Not purchasing? That would mean missing out on something with clear benefits and going back to the old way of doing things.

When you understand loss aversion theory, it’s easy to spot the tactics everywhere from the grocery store to television commercials. The trick is to harness the same strategy and utilize for your particular consumer demographics. Pairing customer data with psychological strategies creates huge gains for those willing to understand loss aversion.

 

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