Thursday, 29 May 2014

The loss aversion effect

If you perform marketing for your company, you might have noticed it.

The very strong influence of the 'loss aversion effect'.

It's another known effect of the long list of cognitive biases. 

These biases are etched straight onto our brain, and are consequently hard to escape from. 

This particular effect stands for our strong tendency to prefer 'not losing' over gaining

A famous example is the study of cab drivers in New York. They have a lot of work during rainy days, and next to no work on very sunny days. 

Now you would think that cab drivers as a whole would put in more hours during the rainy days, as those days give them the opportunity to earn a lot very fast, and thus pile up savings.

The opposite is true: on rainy days they call it a day from the moment they've put in the right amount of hours. And on sunny days they sit and wait and sit and wait until they've scrambled together the expected daily amount.

Irrational? Yes. 
Because working a long day when business goes very well, would instantly make up for several bad days. 

But there you go: the fear of losing out largely outranks the wish of winning or gaining more.  

What has this got to do with marketing?

Very, very much.

New marketing strategies or tools spring up all the time. And invariably it are the FIRST who start with it, who gain, who build a competitive edge, who nibble at the market share, collect more customers.

Remember the days that it was 'highly advantagous to be on YouTube'? That 'you should have a mobile website'? That 'you will earn more if you have an online availability system'? 

Those who instantly react to such messages are far and few between.
As a whole, we marketers tend to only start, sigh, with any strategy, when the lines have already been drawn and we fear to lose out. 
We tag along, so to speak. 
There's no longer any advantage in it (35 hours of video material are uploaded onto YouTube every single second) but we're not so much interested in advantages, as in not having disadvantages.

Hence why 'gain 20€' does not work as well as 'do not lose out on your 20€'!

We humans are much more afraid of losing, than we dream of winning.


PS: A minor correction here: it are not only those who are FIRST with a marketing strategy that reap all the benefits. Also those who are not first, but BEST at it. 

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