Loss Aversion & The Status Quo

People are far more concerned about the idea of losing something than they are about the idea of gaining something.

Look to your own experience and you’ll be able to find SOMETHING to demonstrate this. Loss Aversion a major emotional factor when it comes to managing our resources and our life.

Loss aversion is always there - with some transactions it’s so small and so low that people don’t realize it’s there. But get home with a box of six popsicles and realize that there are only five - some people become unhinged for the rest of the day.

Now when dealing with an unusual transaction (purchasing something you’ve never purchased before, or something no one has purchased before), the loss aversion compounds with a fear of losing face. What will other people say if I was taken in? If I was conned?

Part of sales is answering the objections - the reasons customers generate to not-purchase something. “Isn’t it too expensive? Will it work with the appliances I already have? Will it be outdated soon?” It’s not just the fear of wasting money. The fear of wasted time is something that’s so pervasive across all products and services that productivity has become it’s own category of business books.

Logically a guarantee is something consumers can use to hedge their purchase against getting a product that’s defective. Emotionally it’s removing the final (and often largest) mental barrier of purchase.

Some offer a two week return-for-any-reason guarantee. Some offer 30 day, 60 day, 90 day, one year, five year, or lifetime guarantees.

Which one is right?

Whichever one gets the client to take money out of their wallet and hand it to you.

The logistics of the guarantee is secondary. And honestly, if you can’t reasonably offer the appropriate guarantee, you might have to take your product/service back to the drawing board.

Many cars have five year warranties. That’s because most of the things that will go wrong with it during regular use will happen in those first few years. Anything beyond that is unlikely to be the result of a manufacturer's defect. No doubt this has borne out from car manufacturers experience, and supported by statistical modeling.

Personally I’ve had the experience of having a car’s transmission break down while I was in another city. The extended drivetrain warranty on the vehicle I purchased played a large part in my taking money out of my wallet and handing it to the dealership.

There are even some products out there that let you try a product for a month before they bill your credit card. This works because once they start using the TV, sleeping on the mattress, using the kitchen gadget, it becomes part of the customer's status quo.

Returning the product at that point is prevented by - you guessed it - loss aversion. This won’t work 100% of the time, but it can work well enough to grow a business on a single product line.