Is loss the winner?

Understanding loss aversion in marketing

Do you like winning... No, don’t start answering yet, wait for the whole question. 

Do you like winning more than not losing?

Think about it, what is better - to come first in a race or to not come last in the race? 

If you chose to not come last in the race, then you are not alone. You are exhibiting something called Loss Aversion. Loss aversion is a phenomenon where people prefer avoiding losses to acquiring gains. 

This phenomenon has always been a part of our behaviour but it was discovered by two Nobel Prize winning Psychologists. Daniel Kahneman and Amos Tversky were doing a project on how people make decisions, when they discovered that people in general are loss averse. 

Interestingly, they also found that loss aversion is particularly true when it comes to money. The pain that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount. Money makes everything better, doesn’t it?

Now that you know about this phenomenon, do you think you will actively be able to avoid it? Well, I won’t put my money on it. There is a biopsychological reason why we avoid losses. Humans are hardwired to focus more and dwell over negative events and experiences. This is called negative bias and is the root cause for Loss aversion. In order to avoid dealing with the strong emotions associated with loss, we tend to avoid loss altogether.

Use loss to win the marketing game!

If I stack all the sales bought items in my house, I will probably end up with a sky tower of pretty useless items. I take some comfort in the fact that I am not the only one. Almost everyone falls for some or the other form of loss aversion marketing tactic. Here is what the tactics look like - 

“Don’t miss out on this amazing deal!”

“Only 2 left in stock! Order now!”

“Last chance to buy!”

“Flash Sale! Today Only!”

These market pressure statements create something called “urgency”, and this urgency speaks directly to our desire to avoid losses. Sometimes we might find them unpleasant but these statements definitely work, ask all the stationary I have in my house!

This concept is very similar to putting a timeline to your goals. You are giving a timeline to your customers too, you are asking them to make decisions and take action NOW.

Sounds great, right? But remember excess of anything is bad. If you bombard your customers with constant offers and ‘urgency statements’, they will not stay urgent. Three things that will happen for sure are - 

  • Your customers will stop taking you seriously - If you keep three “once in a lifetime offer” in a month, it will get very difficult for your customers to take you seriously. 

  • They will never buy an item at their original price - The full price of your service or your product will get lost in a sea of offers. 

  • It will be an off-putting experience - How will you feel if I keep sending you a new offer every week? That is exactly how your customers will feel if you do the same. 

The best way to avoid any of these scenarios? Make your loss aversion real. Stick to your limited time sales offer, don’t constantly keep running them. All of this boils down to you having a well thought out marketing strategy. The best tip would be to understand loss aversion and the inner workings of it, before you start putting it to use. 

Quick takeaways

  • Loss aversion is a phenomenon where people prefer avoiding losses to acquiring gains. 

  • Loss aversion is particularly true when it comes to money. The pain of losing a sum of money is greater than the pleasure of gaining the same amount of money. 

  • Using loss aversion in marketing can be very useful as long as you don’t over do it. 

One last thought…

I would like to leave you with a small trick. 

You know what’s the best time for a loss aversion tactic? It’s when you see abandoned shopping carts. When a shopper places things in their cart, they have already shown interest. They just usually need a little encouragement to make the final decision. 

This is your window, this is when you show them what they will lose if they don’t buy the cart items. 

It’s usually a very small window, so don’t miss out!