Q: What role does the concept of “loss aversion” play in buyer resistance? How can product managers leverage this knowledge to facilitate the adoption of new features?
Loss aversion is a behavioral phenomenon where losses have a much greater impact on people than similarly sized gains. Loss aversion becomes a critical factor in buyer resistance because such bias leads consumers to value the advantages of products they own more than the benefits of new products. From a consumer perspective, acquiring a new product usually means giving up the current product or feature, and this trade-off will be seen as “gains” versus “losses”. Thus, the impact of the “loss” in giving up the incumbent benefit would be much greater than the impact of similar or even larger-sized “gains” in acquiring a new product. Therefore, the buyers will require a much larger scale of “gains” in order to be convinced to buy, culminating in loss aversion driving buyer resistance. This implies that it is not enough for a new product to be simply better.
While there are several strategies to leverage this knowledge, I will highlight three approaches a product manager could have in order to utilize the knowledge of “loss aversion” to its advantage. The first is to make behaviorally compatible product that would require minimal behavioral or habitual changes from the consumer. One such way to do so is to blend the innovation into the current benefits or features of incumbent products. The reading gives an example of Toyota Prius, where they implemented an innovative self-charging electric engine with the traditional combustion engine, resulting in the driver retaining the same benefits (similar driving experience) while also enjoying the “gains” from being more fuel-efficient & more environmentally friendly. Such methods minimize “loss,” thus avoiding the buyer resistance derived from loss aversion. The second approach is to find the unendowed, or seek the consumers who have not established an incumbent product in a particular genre yet. The reading provides an example of Burton Snowboards, where they targeted young winter sports enthusiasts who haven’t yet established themselves as skiers. For those “skiers,” there is very little “loss” associated with trying out snowboarding, which again minimizes the impact of loss aversion. Finally, the third approach is to artificially create endowment effect prior to owning the product, such as through free trial. Take Spotify for example. Once a user tries out Spotify’s free trial program (e.g. for 1 month), the user will have enjoyed the benefits of Spotify and are in a position where they could lose this benefit, which creates endowment effect. This endowment effect (which is caused by loss aversion) will lead consumers to value the product more than they would have prior to owning the product. Hence, creating endowment effect in such ways could be an effective way to leverage loss aversion to convince more consumers to buy your product.
