Sales Conversion from Loss Aversion

You just spent a great long-weekend in Las Vegas with your friends.  You went to fabulous restaurants, went shopping, and of course did some gambling at the casinos.  If someone on the street gave you the choice between $50, no strings attached, vs. flipping a coin for the chance of winning $100, what option would you choose?  In spite of both options being numerically the same, most people would choose the $50.  This is an example of the phenomenon of loss aversion.

Loss aversion is defined as people's tendency to strongly prefer avoiding losses to acquiring gains.  A study conducted by Daniel Kahneman found that the statement “if you buy our product, you will save $100 per year” is half as powerful than the statement “if you do not buy our product, you will lose $100 per year”.

Most studies have found similar results, that losses are twice as powerful mentally as gains.  This opens the door for opportunities to marketers.  They can express an outcome is a loss frame instead of a gain frame.  Some examples include:

• Free trail:  once you’re used to a product or service you grow accustomed to the luxury of it. The likelihood of you sending it back, which could be a hassle, is slim. An example is a free month trial of a Shark vacuum.
• Wording: Instead of emphasizing what a consumer will gain from an offering, emphasize what they’ll be missing out on if they do not purchase an offering.  For instance, The General’s commercial “Don’t overpay for auto insurance!”
• Luring them back: If your local Yogurtology has a punch card where you get the 6^th yogurt free, you’re more inclined to return to Yogurtology.  Why would you pass up something “free”?

It is human psychological nature.  Once we have something, we surely do not want to surrender it.