Loss Aversion
Loss aversion is a concept in which losses have a greater impact than gains of similar magnitude, termed by Kahneman and Tversky. This also means that when customers are buying a new product, the gains have to vastly outweigh the losses in order for customers to consider the product to be “worth it.” Also consider that there are many things customers may consider as a loss – for example, any change in their daily habitual lifestyles can be seen as a “loss.” It’s estimated that the gains have to be better than the losses at a “factor between two or three” (2) before something is seen as “worth it.”
How can PMs Navigate This?
For PMs to adapt this to facilitate new features, they need to consider whether or not their product is viable or valuable in the hands of the consumers. For example, PMs must consider if their product is easily adaptable to existing behaviors, or an “easy sell” (6). Furthermore, they should keep loss aversion into account when making features that make products a direct upgrade. The example of the Dvorak keyboard is given (6), where although it’s technically an “upgrade” to existing keyboards, having to change customer behaviors (their conditioned habituation toward regular keyboards and relative comfort with that system), makes it not as valuable and a failure. The best products are those that “offer great benefits but require minimal behavior change” (6).
Cases of Significant Behavioral Change
There still exist cases in which behavioral change is significant and unavoidable – with that in mind, there are still strategies companies can employ. For example, the idea of being patient is suggested, that is, anticipate a “long, drawn out adoption process” (7). Companies should be prepared for a gradual adoption process that takes time, instead of preparing for a short and quick process in which they may deplete all their resources too soon. Another way of managing this is simply making the benefits so good that they outweigh the costs, similar to the 2/3 times factor improvement mentioned earlier. If, however, staying for the long term isn’t a viable strategy, then companies may also consider targeting a demographic that isn’t already accustomed to rival products. In this case, there’s less of a “cost” in that behaviors haven’t been ingrained into this demographic. Another option is to strategically target customers that value the benefits much more than the costs they give up. Gourville raises the example of hydrogen powered fuel vehicles, and for individuals to target “environmentally conscious consumers.” In this case, they would value the environmental benefits more than the adoption process of getting used to new vehicles.
Summary
Loss aversion references the concept that gains must vastly outweigh losses to be seen as “worth it.” Luckily, there are strategies to combat this, such as minimizing behavior changes or making the gains vastly outweigh the losses.
