Using loss aversion in your advantage

The effect that loss has on a brain, is stronger than the effect of gaining. Decision behavior can be strongly affected using loss aversion. Think about the conversations you have at work next to the coffee machine. They are all about negative issues where someone has lost. Not often they will tell you what discussion they won because simply the effect of it is a lot smaller. Read about an interesting experiment and examples to work with.

An experiment on loss aversion

In this study, they had two scenarios. In both scenarios, participants were given $50 at the start and got two options. The first scenario was:

1. keep $30, or
2. gamble with a 50/50 chance of keeping or losing the whole $50.

43% chose option two and gambled to win 50 dollars.

In the second scenario, they simply changed the way they told the participants how they remained with 30 dollars for the first option. For option 1, instead of keeping 30, the participants now lost 20 dollars. These were the two options to choose from:

1. losing $20, or
2. gambling with a 50/50 chance of keeping or losing the whole $50.

Now 61% of the participants chose to gamble instead of keeping 30 dollars/losing 20 dollars.
Simply said, the fear of losing something has more effect on decision behavior then the knowing of gaining something.

Try to take away, not give points

Loss aversion can be used more than I see around me. A simple example: the point system for drivers. The system differs per country, but in a lot of countries, you actually gain points when you make an infringement. And you will definitely hear at the bar that evening: “Guys I have another point!”. And you high-five on that. While the system using penalty points won’t cause that effect and will give you a feeling you’ve lost something. No one will go to the bar and shout: “I’ve lost a point!”

Most games now use loss aversion to get you back at the game. While it used to be about gaining points or experience points only, most games, especially apps, now also take something from you when you haven’t played for a day or haven’t completed a level in a given time for example.

Loyalty programs are against the principle

Most loyalty systems experience problems with their customers not using their points. Logically, because it takes, months or years to save points, and when you use them, they are gone. In this case, the loyalty system has a loss aversion on the required effect. Somehow this needs to be turned around.

Air Miles, for example, started assigning an expiration date to saved points. Not really the solution I would pick because you are actually taking away points from your loyal customers. In the case of loyalty points, it is hard to take away the loss aversion completely. You simply have to hand in your point to get your gift. But the pain experienced by exchanging the points could be softened. For example, reward a month of a point multiplier after buying a gift. You not only give the idea that the loss is easier retrieved, but you also encourage buying in your store again.

Promotions

What you gain from a purchase is getting less relevant. Look at websites like booking.com who only play with your loss aversion to get you over the hump. Using the FOMO (Fear Of Missing Out) is a common principle in promotions. Read my Fear Of Missing Out article for all the tricks you can use in your campaigns, from using the right colors to free countdown timers.

How to increase loss aversion

Loss aversion is not created easily into every concept. Here are some tips you can use to cause the feeling:

  • Use a limited time of Free trial. The feeling of losing something is greater if the customers already used the product.
  • Use language that implies the customer already has the product or let them imagine they already have it.
  • Show videos of persons using the product.
  • Use samples. By using samples, the customers are being owners of the product for a short time. After that period, they don’t want to lose the product.
  • Use urgency and scarcity

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