- 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,” a concept introduced by psychologists Daniel Kahneman and Amos Tversky, plays an important role in buyer resistance. The phenomenon attempts to explain why individuals tend to experience greater emotional impact from losses than from equivalent gains. Studies have consistently demonstrated this phenomenon in action, as, for example, most people will not accept a bet that offers a 50% chance of winning $100 and a 50% chance of losing $100, despite the expected value being neutral (🎰). This illustrates that individuals tend to place significantly more importance on avoiding potential losses when compared to acquiring potential gains. Psychologists estimate that for most individuals to find a bet attractive, the potential gain must be two to three times larger than the potential loss. With regards to buyer resistance, loss aversion creates significant challenges for product managers who are trying to bring new features or products to the market, as buyers often see the act of adopting a new product as risky. The potential downsides they could incur, like the time and effort required to learn how to use something new, are felt more strongly than the possible benefits of new features. This connects to the “endowment effect,” where customers place a higher value on the products they have already purchased when compared to newer alternatives. As a result, even if a new product or feature offers clear improvements, customers may still not switch over because they are more focused on what they might lose than what they could gain (📈).
Product managers must always consider how loss aversion as a phenomenon will impact the future potential of their products. One important strategy is to make sure any new product or feature introduced isn’t just slightly better, but much better than the existing version or competing products. Some critics argue that this factor should be somewhere in the ballpark of a 10x increase over previous products (🏟️). Buyers are more likely to get past loss aversion when the benefits of switching are clearly and significantly greater than sticking with what they know. Small, incremental improvements often aren’t enough to convince them to switch, which can lead to weak interest and slow adoption. Product managers should focus on creating features that offer clear and meaningful improvements if they want to tackle this. These upgrades should solve real problems or provide new capabilities that are much better than what’s already available, making it worth the perceived risks and effort of switching. Additionally, product managers should try to minimise the behavior changes needed to start using the new product. The easier it is for users to fit the new product into their current routine, the less they will worry about losing time or energy in the transition. By considering the impact that loss aversion may have on potential customers, product managers can better navigate the challenges of launching a successful and long-lasting product (📱).
