On Using Fear in Marketing
In 1979, Amos Tversky and Daniel Kahneman identified the loss aversion bias. It states that we are willing to risk more to avoid loss than to make a gain. “The pain of losing is psychologically about twice as powerful as the pleasure of gaining,” describes a behavioral economics resource.
“In everyday life, loss aversion manifests as risk aversion. For instance, say you have an investment opportunity whereby you have a fifty percent chance of quintupling your initial investment and a fifty percent chance of losing your money. This is a reasonable risk to take, as the potential gain is considerably higher than the potential loss. Yet neuroeconomic studies by the likes of Daniel Kahneman, Amos Tversky, Richard Thaler, and others have shown that for many humans, the potential pain of a loss overwhelms the brain’s computational processes and might prevent you from making a rational investment bet.”
We value an item more when we’re about to give it up than when obtaining it. So we tend to steer clear of losses because “losses loom larger than gains” (Tversky & Kahneman, 1979). Even when the probability of losing is tiny.
Have you noticed how your customers react to free trials and limited-time offers? Many factors may influence your customer’s buying decisions. But when you understand how loss aversion bias affects their habits, you can craft better marketing strategies.
But don’t bank on fear alone
Last week, I was walking in a park with friends when the topic of #adulting came up. We were talking about savings and investments when one of them pointed out how some life insurance companies present themselves as doomsday heroes.
They paint our future selves as helpless people and themselves as the hero that swoops in to save the day. Instead of empowering us to take control of our financial life and build a legacy for our loved ones, they exploit our deepest fears — loss and death — to scare us into signing.
Does it work? Maybe for some.
Does it always work? I doubt it.
Despite the benefits of using loss aversion bias in our marketing efforts, a study in social marketing “shows that the use of negative appeals (fear, shame, and guilt) can also invoke self-protection and inaction rather than an active response such as volunteering to comply.”
Developed by Kim Witte, the Extended Parallel Process Model(EPPM) attempts to predict how people react to a stimuli of fear. A journal examining college students’ responses to antismoking messages referred to this model as well:
If people are too fearful, they expend their energy controlling the fear instead of reducing the danger by getting out of harm’s way. When a vulnerable person feels threatened but lacks the efficacy to bring about change (e.g., the smoker who is worried about health and has tried to quit but failed), fear is the end result. Fear in turn can trigger denial, aggression, and the likelihood of riskier behavior.
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