In psychology, loss aversion is a theory that says people tend to feel the effects of losses more strongly than the effects of gains.
I need you to go back into your subconscious and remember something traumatic.
I need you to think back to a time when you lost $20 and how you felt at that moment. I’m guessing it was painful.
Now, think of a time when you found $20, like in an old jacket pocket for instance. How did you feel at that moment?
You probably felt pretty good.
But the feeling you got most likely didn’t compare to how you felt when you lost money.
When you lost the $20, you probably felt something stronger.
The reason why I think this is the case is that people feel more stressed when they lose something than they would feel joy if they found something of equal value.
This psychological theory is called loss aversion.
The Loss Aversion Experiment
In 1990, researchers Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler studied this phenomenon with the “mug test.”
In this experiment, the researchers split the participants into two groups –the sellers and the other, buyers. The sellers received mugs and the buyers didn’t receive anything.
The goal of the experiment was to see how much the mug owners valued their items. When the two groups traded, the sellers needed a high price to part ways with the mugs ($7), prices that were above what the buyers valued the item at ($3).
This was because of the endowment effect (sellers placed a high value on this item because they own it and to give it up, they had to get something bigger or more in return).
However, there are some researchers who deny the existence of loss aversion. They don’t believe it exists at all.
How Loss Aversion is Used in Marketing
Loss aversion is something that I see a lot in marketing campaigns.
If you go to pretty much any web store or online business, you’ll see call-to-actions that tap your “loss aversion” neurons and make you feel like you’ll lose something if you don’t sign up for a deal or buy something immediately.
They essentially create FOMO (fear of missing out).
So how can you create these types of ads? Well, all you have to do is add call-to-actions that are urgent.
You can add “Limited Time” offers to your ads. Or you can use “Everything must go” type ads. Or “Space is limited and spots are filling up fast” types. Just create urgency and FOMO.
However, these types of ads shouldn’t be overused.
First, it gets spammy. If you keep having these types of deals and keep sending it to people, it will annoy them and they will ignore it.
Second, the spamminess will lead to people not believing the deal.
If you send an email subscriber a “Limited Time” offer every other week, they’re going to start to think that the deal isn’t a good (or real) one.
And loss aversion only works if people actually believe that they are going to lose something.
Therefore, don’t overdo it.
Only use it once in a while or when you actually have a deal that’s ending soon.
Have you ever seen any of these offers or have used loss aversion in your advertising? How did it go?