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No.27 Loss Aversion

Loss aversion is a cognitive bias that refers to a shopper's tendency to prefer avoiding losses to acquiring equivalent gains.

Shoppers are far more sensitive to price increases than they are to price decreases. Loss aversion refers to shoppers' tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose £5 than to find £5

For example, from July 1981 to July 1983, a 10% increase in the price of eggs led to an 8% decrease in demand, whereas a 10% decrease in the price led to a 3% increase in demand (Putler, 1992).

In another study, consumers were asked to either build up a basic pizza by adding ingredients (e.g. sausage and pepperoni), or scale down from a fully loaded pizza by removing ingredients. Consistent with loss aversion, consumers in the subtractive condition ended up with pizzas that had significantly more ingredients than those in the additive condition (Levin et al., 2002).

There are numerous ways in which loss aversion can be applied in-store and online. This bias can make it better for your brand and better for shoppers too.

  1. Frame your offers – ‘save’ messages like ‘extra free’ offers. Shoppers want to hang on to what they already have rather than get some more.
  2. Focus on what’s left – when shoppers consider your brand, remind them of what they won’t lose, more than what they’ll gain. For example, refill packs, retain the original container and give more product whilst helping shoppers retain more of their money.
  3. Incite fast-purchasing behaviour – provide shoppers with an indication of not just how much can be gained, but also importantly, how much can be ‘lost’ if they do not choose to buy it now (use scarcity tactics like ‘only 3 left in stock’).

In summary, loss aversion is an important aspect of everyday economic life. The idea suggests that people have a tendency to stick with what they have unless there is a good reason to switch.

About Phillip Adcock

My name is Phillip Adcock: I have more than 30 years of human behavioural research and analysis, and have developed a unique ability to identify what it is that makes people psychologically and physiologically 'tick'.

Would you like to know more about how shoppers and consumers think? Download my FREE guide now. Alternatively, check out www.adcocksolutions.com, where there are more FREE downloads available there. Or why not simply email me with what's on your mind?

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Phillip Adcock
Psychology & Behaviour
Change Consultant

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