Loss Aversion : Bets and Costs
Would you be willing to bet on a coin flip ? If you guess right, you win $50, if you guess wrong, you are out $50. What about $150 if you win compared to the same $50 price of losing? If you were quickly unimpressed by the first offer yet slightly swayed, at least, by the second one, you would not be alone. A decision only seems compelling when the potential gains are two to three times greater than the potential loss. This is a phenomenon coined by Kahneman and Tversky known as “loss aversion”.
Buyer Resistance and Familiarity
Furthermore, due to the endowment effect, consumers value familiar products more than unfamiliar or new ones. This is because they can see the value in something they already have and losing said item would feel like a complete loss. In contrast, when deciding to buy something new, they do not see it as a loss to continue to go without it, and thus the perceived value is low. Spending money on new items is a loss that often outweighs the gain of having said product. This leads to buyer resistance even in instances where this product is a better version of something they are familiar with – people like to stick to what they know, especially if it involves spending money.
Leveraging this Knowledge as a PM
As a product manager, comfort in familiarity and buyer resistance can be leveraged. The average consumer likely does not care about how innovative nor cutting edge a product or feature is, especially if the target market consists of average, working people. What is appealing and what should be highlighted in the rollout and promotion of any feature or product is the value that it can bring to said consumers life and how those gains outweigh the costs and explain the charge. If a consumer can see the ease, convenience, entertainment, or enjoyment that can be provided, they can be convinced.
