Nobody likes losing. But did you know the pain of losing is considered twice as powerful as the pleasure of gaining?  In fact, it takes a relatively small amount of risk to put (most of us) off trying for significant gains. This is the basic concept of Loss Aversion, one of the key principles of marketing psychology, and it's pivotal in our decision-making processes when it comes to purchasing. If you're a startup, writing your own marketing copy, you might be using marketing tactics that you see other businesses using. The problem is, loss aversion as a selling technique is not for every product, nor every audience. So it's important to understand the psychology behind the tactics you're using. Or perhaps, like me, you are simply fascinated by human behaviour. In which case this post may give you some quality backchat next time you're bothered on the phone by a 'Don't Lose Out on this offer' scam call ...

Loss Aversion - the Basics

We Don't like Losing our Stuff!

I love research that illustrates principles simply, and the following is just such a study. In an experiment by Amos Tversky and Daniel Kahneman (2005), a random group of subjects were given - to keep - either a mug or a pen of equal value.  When asked if they would like to swap their gift for the other item, almost all of the subjects from both groups chose not to - regardless of whether they had the cup or the pen. They saw it as a loss of something they owned, and weren't giving it up. This is known as the 'Ownership Effect' which is attributed to Loss Aversion. In a nutshell, we value something more when we own it than when we don't. And we don't like letting go of things that belong to us.

We put a higher Value on Things we own.

In another experiment, a group of mug owners ('sellers') who had been given a mug, were asked to sell their mug to another group, ('buyers'). Consistently, the sellers priced the mug at almost DOUBLE what the buyers were prepared to pay for it, when it was their mug. So it seems we also put an arbitrarily higher value on things that belong to us. But more than that, we want more money for selling something that's ours, than we would pay for simply buying it. It's entirely irrational and flies in the face of classical economics, which assumes rational behaviour. But that's what it is to be human. 

Ok, so what's this got to do with Marketing Tactics?

It has a lot to do with marketing tactics. Every business transaction is a psychological tug-of-war between loss (e.g., money, familiarity) and gain. (e.g., products, services, status). So grasping the concept that we are more responsive to losses than to gains, may help you to frame your offers in a way that piques your customers' interest. And Loss Aversion is everywhere. It's why the pro-social plastic bag tax succeeded in reducing plastic bag sales so drastically. Bag buyers across the UK changed their habits instantly when they started being taxed on them rather than rewarded for not buying them. 'Start charging us 5p? I don't think so. I'll bring my own.'  Result: 90% drop in plastic bag sales within the year. Boom.

Marketing Tactics that use Loss Aversion

So how does Loss Aversion look in your ad copy, and how does it play out? Here are some of the key tactics used and how they affect our decision-making processes as customers.

Urgency

'Today only - 40% off'. (I'll lose my hard-earned cash if I don't buy it now) Understanding that the likely driver here is avoiding the loss of 40% - more than it is about keeping it. This will influence the wording of your ad and any social commentary that goes with your campaign.

Discounts

'Reduced ...' (I'll lose money if I buy it elsewhere) This is a classic loss aversion tactic. Customers know that if they buy the item from you, they will 'lose' less money than they would buying from elsewhere. The RRP reinforces that message and gives them all the information they need to make a sensible decision.

Scarcity

'Only 3 in stock'.(I'll lose out). Losing the chance to own something based purely on how quickly you act is a powerful motivator. The customer feels that hesitation will lose the game and sets in motion a whole raft of justifications for acting now, over waiting a little longer, or researching a little more.

Social Proof

'Thunberg/Beyoncé/Obama loves this' (I'm missing out) FOMO is based on the loss of connection with, or respect from, others, and the loss of opportunity. When people feel that others are getting something they're not, it's a strong driver to follow suit. Whether you use testimonials, images of people using your product, or straightforward copy, always consider that you are playing to your audience's sense of belonging, and their wish to avoid losing that feeling by not taking action.

Risk-free

'30 day money-back guarantee' ('I can return it') We are less likely to return things we take home - because it's now 'ours'. Customers buy on the basis of a 30-day Moneyback guarantee because they are considering how easy it will be to let go of the item with their current detachment to it; i.e., it's only a shop item. Once sitting nicely in the corner of their home? Not so easy. Nowadays, this tactic has lost its bite somewhat, as customers are often wary of being 'scammed' with unreasonable terms and conditions that prevent refunding.

Status Quo Bias

'If it ain't broke ...' (Great; I don't like change) We like things to stay the same. Or turned on its head, we are averse to change - the loss of what we're used to. This is why it used to be difficult to get people to switch their car insurance or utilities  - and why companies that do it for you fare so well nowadays.  Customers generally stick with what works for them mostly because the bother of changing - of losing time, money or service - is greater than the benefit. Take away the hassle and the fear of change, however, and customers will warm to being poached with a mere voucher.

Don't Lose Out! (On the Bigger Picture:)

If you write your own marketing materials, it's good to know as much as you can about the process before you start. Your brand personality, your products or services, which media you're using, and the type of audience you're selling to; these are just a few of the factors that play a pivotal part in how you market to your audience. And Loss Aversion is just one of many psychological concepts used to draw customers in. I would say, get stuck in with a good marketing book, and understand the best techniques for your business, and the concepts they are rooted in. After all, used properly, the right tactics can help you to land that all-important customer - or rather, avoid losing one. Which is far preferable 🙂