“Get it now before supplies last!”
“Limited stocks only!”
What’s your first reaction when you see these signs at any supermarket or department store?
Yes, a lot of people would, by instinct, panic and start buying right away. Who wants to miss out on a good thing, right?
In neuromarketing, this is what we call LOSS AVERSION.
What is Loss Aversion?
Loss aversion dictates that when given a choice between avoiding a loss and reaping a reward, people would still choose to avoid a loss.
What’s the difference?
Well, reaping a reward would be similar to winning a prize. And remember, a lot of people dream about what they’ll do the moment they win the lottery. But a lot of these people do not even buy lottery tickets.
Let’s say you have two signs right beside each other. Sign A says, “Grab this amazing offer!” while sign B says, “Don’t lose out on this offer!” Both signs would be offering the same product, the same promo, the same special pricing. The difference, however, is that one emphasizes a gain, while the other emphasizes a loss.
A research project by Daniel Kahneman and Amos Tversky shows that the amount of aggravation that people experience when they suffer a loss is much greater than the pleasure they get when gaining the same amount.
This evidently affects consumer behavior, giving marketers everywhere the opportunity to increase conversion.
The Significance of Framing
How do marketers take advantage of loss aversion? Well, to influence the way your audiences will respond to your loss aversion strategies, you would have to understand another concept related to neuromarketing – FRAMING.
Framing is defined as the way you describe something.
Think about these two statements, for example:
A. Through the treatment, 500 out of the 1,000 people died.
B. Through the treatment, 500 out of the 1,000 people lived.
They talk about the same treatment. They even show the same numbers. Technically, both statements show that the treatment being discussed has a 50% success rate.
The effect that these 2 statements have on people, however, will be very, very different.
Statement A has the tendency to make people concentrate on the deaths. It’s a glass-half-empty scenario. As for statement B, it’s a glass-half-full case.
So what’s the significance of framing to loss aversion?
Let’s go back to the earlier examples.
A. Grab this amazing offer!
B. Don’t lose out on this offer!
Statement A concentrates on the reward, while statement B looks at the possible loss. Knowing that research has proven how majority of the people will react, the way the 2nd sentence was framed will be a more strategic approach.
As with any marketing approach, there are a few limitations related to using loss aversion in your strategy.
For one thing, the market situation has been pretty shaky the past few years. This means that people are more conscious about what they buy. Do they need it? Is it something they could survive without?
Loss aversion has also been in use in the field of marketing for years. This means that there are consumers out there who are wiser. They know that just because a sign points to a limited offer or a possible loss on their part does not mean that it’s a good deal.
Despite these limitations though, one thing remains consistent – human behavior. Remember that this concept is based on a long history of how humans behave. It’s not just a passing trend. People may grow wiser and more conscious. But with the right framing, they will still end up deciding to take action (like making a purchase or signing up for something).
Using Loss Aversion Effectively
How do you apply the concept of loss aversion to your marketing campaigns?
1. Use relevant data.
Statistics and statements of fact are extremely helpful when reinforcing a message of loss aversion. You can state by what percentage your product is successful, or give the exact amount of the possible loss they could be looking at.
When people see statistics, they immediately see a higher level of credibility in something you are claiming. Using relevant data would allow you to remove a possible doubt that could be stopping your target market from making a move.
2. Consider remarketing.
Sometimes, people visit your website or your e-commerce page to look at specific items, but end up abandoning their shopping cart before making a purchase. Some reasons for this behavior are:
- They got distracted, then forgot all about their abandoned cart.
- They need more time to think about it.
- They want to compare the product with other alternatives.
- They just aren’t interested anymore.
Although the 4th reason is always there, take a look at the 1st three. In all these options, the choice of purchasing is left hanging. This means that you have the opportunity to remind them about the product they were looking at, and possibly prod them to finally make the purchase.
3. Offer rewards.
Hang on a minute. We just mentioned earlier that people respond more to a possible loss than a potential reward, right? Well, just because this is the case does not mean that you can’t use both.
One common way to do this is offering something extra if they decide to avoid a possible loss NOW. Let’s say you’re marketing concert tickets. You can say, “Get 75% off for limited front seat tickets if you buy in the next 30 minutes!” In this statement, you’re referring to a possible loss on their part by saying that the seats are limited while giving them a reward at the same time.
Not getting the results you need? That’s okay! The use of loss aversion on your marketing approach could take many forms. It’s all up to you. You can create strategies based on what your current offerings are and tweak them as needed. What’s important is that you’re willing to experiment with your approach and are quick to move depending on the numbers you see.