Have you ever tried selling your car for the exact same amount you purchased it for, even though you’ve been using it for a few years? Or found it hard to part with objects that have very little objective value but they have been in your home for ages?
If so, you have experienced the endowment effect. Loss aversion is a more powerful motivator than the opportunity to gain something. Today, we’re exploring its marketing uses.
| 🔦Community Spotlight Get your bi-weekly dose of B2B growth insights, packed with powerful case studies, trends, and unconventional growth strategies you won’t find elsewhere. Subscribe to Growth Waves. 💡 Want your name here? Scroll to the bottom of this email to find your referral link & start referring people to Ideas to Power Your Future! |
What is the endowment effect?
The endowment effect is a cognitive bias that occurs “when we overvalue something that we own, regardless of its objective market value”. (Kahneman et al, 1991)
Behavioral economist Daniel Kahneman found that people tend to value an item higher if they own it. His team gave undergraduates at Cornell University a mug and the opportunity to trade it for an item of equal objective value.
Objectively speaking, half the study subjects should have traded the mug. Except they didn’t. Once they felt like they owned the mug, the amount they would accept to trade it for doubled.
Image via DecisionLab
A similar study by Cameron and Ariely showed that people who won basketball tickets were willing to sell them for a much higher price ($2400) than others would have paid for them ($175). Once they owned the tickets, their value increased.
In another study, most participants were unwilling to trade the lottery tickets they were given first for a significant amount of money. Trading the lottery tickets would have mitigated their risks and given them a sure win. But loss aversion and the endowment effect won.
Side note: this is also why we suffer more if we lose $50 than we rejoice when we win $100. That was our $50, damn it!
You’ve surely seen the endowment effect at play with Lord of The Rings’ Gollum, one of the most tragic characters in literature. Once the ring was his, it completely changed him.
Image via Reddit
Sure, that particular ring was magical but it’s still a good mirror into human behavior.
This is why we have trouble de-cluttering our homes, for instance. Shut up, Marie Kondo, ALL of those 18 pairs of jeans spark joy and I will surely use that VGA cable again at some point!
We’re not here to de-clutter our homes, we’re here how to apply perennial psychology principles in marketing. Let’s apply this!
The feeling of ownership can be enough if escalated enough to trigger the endowment effect
I’ve written about psychological ownership before — Spotify and EasyJet build it into their products: you feel like you have a stake in them, so you’ll keep on using them and even share your experience on social media.
Build-in-public strategies play on this effect too (thanks, Hannah, for making the correlation for me!). When you’ve known a creator/founder since their beginning, you feel invested in their journey, so you’ll keep following along.
The endowment effect takes things one step further, though, either by literally giving people a piece of the product or by projecting a feeling of actual ownership i.e. getting them to imagine what it would be like to own the damn thing.
How to use this in your business
Start by asking yourself this question: how can I immerse my leads into my product/service before they buy? SaaS brands are the best example here: through a free trial, you own the product for a while.
Plus, you’ll probably add some of your data to their cloud, so this will trigger both psychological ownership and loss aversion.
What about other types of products? Let’s see:
Selling physical products?
Create a digital fitting room where people can see themselves wearing your product or they can create a simulation of what it looks like in their home/car/office.
Also, allow them to personalize their products. Tiffany lets you personalize and engrave some pieces, for instance, so you’ll feel like you own them even before they are shipped to you.
Selling digital products?
Give them free access to a small part of what you’re selling — an intro section of your course, for instance. Some writers offer a free chapter of their book.
Or immerse them into the product through screenshots and walk-through demos. This is a somewhat diluted tactic but it’s better than nothing.
Selling services?
During the demo, use your prospect’s branding on what you’re showcasing.
Or give them a taste of what working with you is like: create a mock-up of one page of their website (for designers), or replace the copy on their website with yours (for copywriters → here’s how you can do this without actually hacking into websites you don’t own. Use the process in the tutorial, take a screenshot of your copy on your prospect’s website, and send it to them).
They will own your demo work and, if it’s on-point, feel more inclined to work with you in the long run.
Create loyalty programs
People who are part of loyalty programs will spend more with the same brand. Take punch cards, for instance — you own them and you need just one more punch to get YOUR free drink.
Discount coupons, free stuff, personalized discounts — they all work extraordinarily well, especially on loyal customers, because they’re theirs and no one else’s.
Use it in your copy, irrespective of what you sell
One of the most common advice in copywriting is to use “you” instead of “we/I” as often as possible. It’s because of the endowment effect.
→ Buy a seat at my free webinar
→ Claim your complimentary seat at my webinar.
The second version will resonate with buyers more because you’ve made it clear that the seat is theirs already, they just have to reach out and grab it.
Paint a picture of what ownership feels like
“What would you do with an extra $1500 a month/10 free hours a week?”
By simply asking this question, you make readers feel like they already have extra money or extra time. They only need to press a button to access it.
Airbnb does this really well when they prompt you to rent your home with them. They tell you how much you could make and it’s hard to unsee yourself with that extra cash:
✋ Limitations
My LinkedIn community is the smartest online community ever — I’ll fight anyone on this! Yesterday, as I announced the topic of this newsletter, a couple of people used the word “manipulation” in their comments.
It got me thinking — is the endowment effect manipulation?
It can be, just like any other marketing tactic can be manipulative in the wrong hands or when overused. The trouble with manipulation is that it can work for the first sale, but it won’t get you any long-term traction.
So:
- Create realistic demos and don’t embellish what the real experience would be like.
- If you claim you can add $X to their income or free up Y hours a week for them, make sure you have data backing this up.
- Don’t enhance your product photos with AI/Photoshop. Sure, you can work on the light but don’t make them look infinitely better than they are.
- Tell people who your product is NOT for. It’s honest and it will save you from dealing with refunds and unhappy customers. But don’t pull any of that “this offer is not for you if like being poor” crap.
Adriana’s Picks
- What’s the price of a childhood turned into content? — an excellent read about why you should think twice before turning your kids into influencers.
- Is it time to put that tinfoil hat back on? Meta is sunsetting CrowdTangle, a tool used by journalists to track misinformation on social media, just as the election cycle is heating up.
- Back to basics: creators are fleeing YouTube because gaining traction has become harder when you have to compete with expensive stunt-based content by Mr Beast & co. Their go-to: blogging and newsletters.
That’s it from me today.
See you next week in your inbox!
Here to make you think,
Adriana
😃 Loved this email? Forward it to a friend!
☹️ Hated this email? Forward it to an enemy!
Was this forwarded to you by a friend or an enemy? Claim your independence — subscribe and get these emails yourself every Thursday.
Need me in your corner? There are three ways I can help you:
- Boost your chances of success by 400%: document your strategy with The Guided Strategy Template.
- Get my product launch email templates that sell: 5+1 emails you can send to your list in 45 seconds.
- Book a 1:1 strategy session with me. Let’s unlock your growth in 60 mins!
