The endowment effect is a byproduct of loss aversion. It states that once people own something they have established the property right that they now own it. Now that they feel it is there it automatically has more value to that person. Think about when stocks fall and shareholders hold on to their shares for too long because they’re afraid of losing money. They inevitably lose in the end in this situation. The point here is that it’s the cognitive bias that creates the endowment effect, making them value their shares and hold them for too long when the smart thing to do would be to sell them off as soon as possible to minimize loss. An example of the endowment effect in marketing and advertising would be in the way of coupons or discounts. The shopper already feels that they own a part of the product and it increases their willingness to pay. Here are some other ways to use the endowment effect in your marketing strategy.
1. Free trials: let the user try the product before they purchase it. This will set ownership from the get-go and the longer they use it, the more willing they will be to pay once the trial is up.
2. Giveaways: whether this is a coupon or discount code, this kicks in ownership and will trigger loss aversion if there is an expiration date.
3. Basic Free Versions: this will give users an account that will spark ownership. If they like the platform enough they can then upgrade and will be more willing to pay.
4. If possible, use touch screens: a study found that users who interact with touch screens have more of a sense of ownership and in turn, the endowment effect.
As we’ve learned from previous articles we’ve written, the power of the human mind is astounding. The endowment effect just comes down to creating a sense of ownership for the customer. Brands can also use personalize to create a sense of ownership and attachment. This is a useful tool in the marketing and advertising world.
