People don’t like to lose.
Whether it’s losing a game, an argument, or an item we want to buy, we don’t like it.
In fact, people make buying decisions that are motivated by their desire to avoid a loss.
Savvy marketers know this. In fact, loss aversion is one of the key principles of marketing psychology.
They keep loss aversion in mind as they plan their campaigns and write their copy.
Here’s what you need to know about loss aversion and 10 proven loss aversion marketing tactics that can help amplify your marketing efforts.
What is loss aversion?
Loss aversion refers to the tendency of people to strongly prefer avoiding losses to acquiring gains. Studies show that loss aversion is twice as powerful psychologically as the acquisition of something.
Psychologists Daniel Kahneman and Amos Tversky (you might remember them from our article on marketing and the anchoring effect) studied the impact of loss on human decision-making and were able to confirm their central assumption that:
…losses and disadvantages have greater impact on preferences than gains and advantages.
Humans are hard-wired to avoid losses. And, in the years since Tversky and Kahneman first developed their behavioral theory based on loss aversion, science has proven this to be true. Stanford University psychology professor Russell A. Poldrack explains:
…psychologists and neuroscientists have uncovered how loss aversion may work on a neural level. In 2007 my colleagues and I found that the brain regions that process value and reward may be silenced more when we evaluate a potential loss than they are activated when we assess a similar-sized gain.
Poldrack goes on to say,
Perhaps most interesting, the reactions in our subjects’ brains were stronger in response to possible losses than to gains—a phenomenon we dubbed neural loss aversion.
Just the idea of a loss is enough to create a strong reaction. There’s no question that loss aversion is a powerful motivator in all aspects of life – including consumer behavior.
Loss Aversion and Urgency
You’re familiar with loss aversion marketing tactics whether you realize it or not.
“Only 3 left in stock! Order now!”
“Available while supplies last.”
“Flash Sale! Today Only!”
“Don’t miss out on this awesome deal!”
We are invited, pressured, and cajoled to purchase using the fear of loss every single day. These hard-sell pressure tactics create what marketers call “urgency.”
And, while these urgency tactics may sometimes be obnoxious, they work.
Just this morning I was shopping for a small shelf to go above my headboard. I wasn’t planning to buy one, but I found a shelf that I liked and noticed that it said, “Only one left in stock” in small red script under the picture.
Before I knew it, I ordered the shelf.
Urgency plays directly to our desire to avoid loss. I didn’t want to miss out on that shelf. So, my lizard brain took over and clicked “Add to Cart,” ensuring that I wouldn’t “lose” what I’d found. Even though I’d never really had it to begin with.
Your marketing efforts should take these fear of loss tactics into account when planning their overall strategy.
What You Can Do
- Attach a time frame for your offer. This will motivate customers to purchase within that time window to avoid losing out on the lower price. This is typical, for example, with retail sales.
- Let people know if there is a limited number of products or service packages available at a particular price point. With the knowledge that the item or service they want may become unavailable at any time, customers will be motivated to buy now, so they don’t lose out. You can see this effect every year on Black Friday.
- Add visible count-down timers and stock notifications to your website or landing page. The visual reminders will help to encourage customers to purchase before it’s too late.
- Don’t overuse these tactics! While these tactics are effective, they are not sustainable as a stand-alone marketing strategy. If you constantly offer “limited time only” sales, people will catch on and only purchase during sales. Or worse, a constant deluge of “limited time” offers and “exclusive” deals will make customers feel lied to and manipulated. Use these tactics with restraint for maximum impact.
Loss Aversion and Status Quo Bias
Loss aversion can also help your business keep existing customers.
Fear of loss has a way of immobilizing people. As the old saying goes, “A bird in the hand is worth two in the bush.” We want to hold on to what we know, even if there may be something better waiting for us.
And, why do we stick with what we know? Because it’s also possible that what’s waiting for us is worse than what we already have.
Dr. Shahrah Heshmat Ph.D. explains:
…people have a tendency to stick with what they have unless there is a good reason to switch. The loss aversion is a reflection of a general bias in human psychology (status quo bias) that make people resistant to change. So when we think about change we focus more on what we might lose rather than on what we might get.
For many people, our natural inclination is to stick with what we’ve got.
But, people do brand-hop. So, what can your marketing team to do encourage existing customers to stay?
What You Can Do
- Provide a great customer experience and customer service. Don’t give people a reason to leave.
- Create a loyalty program that allows customers to accumulate points or status. Once people have those points or status, it will feel harder for them to leave since leaving will mean losing the goodies they’ve earned.
- Find ways to remind your clients what problems your product or service solves in their lives. Customers don’t like to lose a good thing. An email campaign or social media is a great way to do this.
Loss Aversion and the Ownership Effect
People work hard to get what they have.
And once we’ve got something, we hate to let it go.
This is true whether the thing we have is actually ours or if we just think of it as ours.
At the end of the day, despite our best intentions, all people really do subconsciously think that they are the center of the universe. And, why not?
We spend our entire lives seeing the world through the lens of our own experience. We are the centers of our own little universes.
What that means is that when we see things happen to other people, we subconsciously imagine that happening to ourselves as well. So, if we see someone holding an item we think looks cool, we imagine ourselves in that role, too.
Couple this feeling of ownership with the fear of loss and it creates a powerful hook into our brains.
Magda Kay, founder of Psychology for Marketers, puts it this way:
Because we don’t like losing, once we have something, we don’t want to let go of it (and to top it even more – we value it much more). This is called the ownership effect. What it means, is that by making your audience feel they already own your product, they will be more likely to buy it- because not doing so, would mean losing it.
If you want to convert leads into sales, help them envision themselves already owning your product or using your service.
What You Can Do
- Help prospects imagine owning your product.
- Write marketing copy that suggests that your audience already owns the product.
- Show images of people happily interacting with your product or service.
- Show videos of your product being handled by other people.
- Offer a free trial or free samples, so that the prospect can directly interact with your product or service with no risk. You can do this even if you offer a digital service. For example, we allow prospective clients to freely browse active and completed design projects. Clients looking to create a new brand identity or rebrand their existing business might be interested in a professional logo design and would love to see examples of other brands and logos created on crowdspring. They can easily do this by exploring other projects that have been posted on crowdspring.
- Include testimonials from other customers to which your target audience will relate. We do this at crowdspring by letting our clients and prospects look at thousands of crowdspring reviews. They can even filter the reviews by project type (like naming a business, packaging design, web design, etc.)
Loss aversion marketing can be an incredibly effective tool in your marketing repertoire. Be sure to test some of these tactics in your overall marketing strategy.
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