No one likes losing and it isn’t limited to certain parts of our life. Losing sucks in any way, shape, or form. Loss aversion is the behavioral phenomenon that individuals perceive loss more severely than gains. According to Behavioral Economics, the pain is about twice as powerful than a gain. This means that people will go out of their way to make decisions or take risks purely based on what they avoid losing rather than what they will be gaining. This is why it’s sometimes argued that punishments, rather than rewards for doing or not something are more motivating. This topic is important in marketing and advertising because it helps brands to understand what may or may not be effective in their strategies. Think about “Flash Sales” tactics that are a limited time only. They force urgency on the consumer to realize that if they don’t act now, they will lose out on the deals and essentially lose more money. There are a couple of ways to market with loss aversion in mind.
1. Limited time discounts
2. Free trials
3. Pre-order deals
4. Highlight the loss customers will have without your product/service
Emotions impact our buying patterns and loss aversion is a key example of how this is true. It’s simple really. Loss is greater than value, pain is greater than pleasure and losses are two times greater than gains. It’s weird to think that we don’t celebrate gains in our lives as much as we mourn a loss but it this is the reality. Although, that being said, all people vary in the amount of loss aversion that they possess. Some more than others and some even more than them. Making the “no loss” option in marketing will highlight the best way not to lose something the consumer already has.
