I downgraded one of my online subscriptions recently. I noticed in the process that not only did the platform tell me about all the features and benefits I would lose access to by downgrading, but they put it in red typeface AND had me check off a box for each item I was losing. I couldn’t help but think what a great example this experience was for using Loss Aversion to get customers to do what you want.
We discussed using the effects of Loss Aversion in your marketing as part of our new podcast series of the Ten Most Effective Ways to Influence Your Customers’ Behavior. First articulated by Nobel-prize-winning economist Daniel Kahneman and Amos Tversky, Loss Aversion is the idea that the losses loom larger than gains. What I mean by that is if I give you $10, it feels good, but if I take away $10, that feels worse than gaining $10 feels good. In other words, Loss Aversion describes how losses feel worse emotionally and psychologically than gains feel good.
Loss Aversion is the basis of the insurance industry. Insurance protects against loss by reducing your financial risk for a small (relatively) fee.
However, Loss Aversion works for more than insurance companies. If you can emphasize the potential losses to your customers if they behave a specific way, like unsubscribing, that tends to be motivational.
Part of the reason this works so well is it is in our human nature to look out for negative things, which we call a negativity bias. Loss Aversion plays into that nature and tends to be one of the most reliable concepts that you see in human psychology. It influences a lot of our behavior.