WE BELONG TOGETHER

LOSS AVERSION


The tendency to prefer avoiding losses over acquiring equivalent gains.

Humans subconsciously balance our “good” and “bad” behavior over time. When we’ve done things that are positive, responsible, and generous in the past, we are more likely to rationalize (and forgive ourselves) for less desirable actions in the present. 

For example, consumers are twice as likely to purchase a luxury item when asked to commit to a charitable act prior to shopping.Humans react strongly to losing things. In fact, just the possibility of loss activates the part of the brain that processes feelings of fear. Research shows the pain of losing is twice as intense as the joy we experience when winning.

Simply put, our brains believe it’s much better not to lose $20, than to find $20. This hardwiring prompts us to make bigger sacrifices to keep things we have (or perceive we have) versus get something new.

SO WHAT

Consumers will act faster and with more intensity at the potential to lose what they own or have been offered.

Like the saying “a bird in the hand is worth two in the bush,” we hold on to what we know, even if there may be something better waiting for us.

NOW WHAT

  • Offer free trials or rebates; consumers will resist scaling back once the product or service becomes “theirs”.

  • Leverage loss aversion in moderation: over-using this strategy will dilute its effect and erode trust with consumers.

MARKETING IMPLICATION

Is loss aversion preventing consumers from trying your client's product or service, and how can you combat it? What do they value even more than what they currently have?


Stay committed to your decision but flexible with your approach.

- Tony Robbins


Sources & Additional Reading

https://www.crowdspring.com/blog/loss-aversion-marketing/

https://www.thelinusgroup.com/blog/loss-aversion

https://thedecisionlab.com/biases/loss-aversion

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