How to use endowment effect to sell more? Understanding the Power of Ownership

In the complex world of marketing, understanding the quirks of human psychology can be the key to unlocking success.

One such psychological phenomenon that marketers have tapped into is the Endowment Effect – the idea that people tend to value things more highly simply because they own them.

This cognitive bias, observed in various aspects of our lives, was famously illustrated by Gollum’s obsession with the One Ring in J.R.R. Tolkien’s “The Lord of the Rings.”

Much like Gollum, we, too, have a tendency to irrationally love and value what we own more than what we don’t.

So, how can ecommerce brands use this psychological quirk to their advantage?

Well, the answer lies in giving customers a sense of ownership, and consequently, a heightened value perception of the products or services being offered.

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What is “The Endowment Effect”?

The Endowment Effect, a psychological phenomenon first coined by economist Richard Thaler in 1980, delves into the curious ways in which humans assign value to possessions.

It reveals a cognitive bias that influences our decision-making processes, particularly in the realms of ownership and exchange.

To unravel the complexities of the Endowment Effect, it’s essential to explore its definition, underlying psychology, and real-world implications.

The Psychology Behind the Phenomenon

The Endowment Effect is deeply rooted in human psychology and can be attributed to a combination of cognitive biases, emotional attachment, and the concept of loss aversion.

Here’s a breakdown of these psychological factors:

  1. Loss Aversion
    Humans have a natural aversion to losses. The fear of losing what we already have often outweighs the potential gain from acquiring something new.

    This aversion is a powerful driver of the Endowment Effect, as individuals become more reluctant to part with possessions they perceive as theirs.
  2. Emotional Attachment
    Ownership triggers an emotional connection to an object. Whether it’s a family heirloom or a recently acquired gadget, the sentiment attached to ownership intensifies our valuation of the item.

    This emotional bond can override rational assessments of an item’s objective worth.
  3. Cognitive Dissonance
    The Endowment Effect is also related to cognitive dissonance i.e. the discomfort that arises when our beliefs or attitudes conflict. Once we own something, we unconsciously adjust our perceptions to align with our ownership, minimizing any inconsistencies.

    This adjustment reinforces the notion that what we own is inherently valuable.

Now that you know what is the concept of endowment effect and the psychology behind the phenomenon. Now let me show you how to bring this into action!

Let’s Bring the Endowment Effect into Action

Imagine you’ve just received a personalized coupon in your email.

It’s not just any coupon; it’s tailored just for you, adding a touch of exclusivity.

The moment that coupon is added to your account, it becomes yours.

From here triggers the Endowment Effect i.e. the feeling of possession and attachment. Much like Gollum with his precious ring, you are now more likely to retain and value that coupon.

But here’s the twist –

what if, after a while, you receive a reminder saying, “Your $10 coupon expires tonight”?

Suddenly, the stakes are higher.

Now the coupon is no longer just a benefit; it’s a possession that is about to be taken away.

This taps into the Endowment Effect once again, prompting a sense of urgency and a desire to retain what you now perceive as yours.

Now you can easily guess the results.

Obviously, there will be a higher likelihood of making a purchase to ensure you don’t lose out on the value attached to that coupon.

This sounds interesting, isn’t it?

Now let me guide you on how to apply this strategy and get the results

How does the Endowment Effect work in Ecommerce

  1. Adding Coupon to your Subscribers’ Account
    Start by giving your subscribers ownership of something exclusive – a personalized coupon. This could be a percentage discount, a dollar amount off, or a special deal tailored to their preferences.
  2. Make the Coupon Expired
    Create a sense of urgency by making the coupon expire. Craft messages like “Your $10 coupon is expiring tonight,” emphasizing the limited time to use the coupon. This triggers the Endowment Effect, encouraging subscribers to make a purchase before the perceived value disappears.
  3. Points System
    Extend the Endowment Effect to loyalty programs by awarding points to customers. Make it more compelling by introducing an element of expiration – adding and expiring points can create a sense of urgency, motivating customers to engage and make purchases.
  4. Free Gifts
    Offer free gifts as a surprise element, building a sense of ownership among customers. Follow up with reminders about the expiration of the free gift, leveraging the Endowment Effect to encourage continued engagement and purchases.
  5. Subscription Trial
    Provide a free trial for a month with no effort required from the customer. Consider it as a gift. Once the trial period is about to expire, send a reminder asking for a simple click to continue, turning the trial into a full-fledged subscription.
  6. Home Try-Ons
    In the case of products like eyewear or clothing, offer a home try-on period as a free trial. Again, utilize reminders to trigger the Endowment Effect, encouraging customers to take the next step and make a purchase.


Turning the Endowment Effect into a Revenue-Boosting Strategy

In a nutshell, the “Endowment Effect” can be a powerful tool in your email marketing.

By strategically giving customers a sense of ownership and then introducing the element of expiration, you create a psychological loop that drives action.

It’s not just about the product or service; it’s about the perceived value attached to what customers now consider their own.

As marketers, understanding the irrational attachment people have to their possessions can help craft more effective and persuasive email campaigns.

The key is to make customers feel like they own something unique, and then gently remind them that this ownership comes with a time limit.

The result is a motivated and engaged audience, ready to convert and make a purchase.

So, the next time you’re planning your email marketing strategy, consider leveraging the Endowment Effect.

Give your customers something to call their own, and watch as the perceived value turns into increased sales and customer loyalty.

After all, in the world of marketing, understanding the psychology of ownership can be the precious ring that leads to success.


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