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Loss aversion is a cognitive bias that conditions users’ decisions based on their fear of losing money, time, or opportunities. This phenomenon means that consumers often prefer avoiding losses rather than gaining. This is reflected in the influence that loss aversion has on their decisions. The most direct consequence of loss-aversion bias is that many people will only consider participating or buying from an e-commerce, if the potential gain exceeds the risk. Armed with this information, you can tailor your pricing strategy to create a greater sense of urgency for users and speed up the final purchase decision. Here are the keys to applying it to your business.
How to apply loss-aversion bias to your pricing strategy
Understanding cognitive biases that affect users helps brands and retailers influence their behaviour. Despite the benefits, employing these drivers in your sales strategy must be subtle and obey fundamental ethical principles. Otherwise, it can negatively impact the company’s brand image.
Applying loss aversion in sales involves creating messages focused on what users will lose if they don’t immediately purchase certain products or services. At the same time, the messages must avoid being alarmist and making consumers too nervous. The ultimate goal is to find a balance between an attractive offer and an effective call to action. To achieve this, you can:
Create a sense of urgency for users
Remind your customers what they will lose if they don’t immediately go into your online store or if they fail to complete the purchase. This sense of urgency generates more traffic and accelerates the final purchase decision. It can be created by:
- Stock level countdowns for the products and services of greatest interest to the brand. The faster stock levels drop, the greater the customer’s need to purchase. This practice is widespread, especially among airlines and holiday rental websites.
- Launch of exclusive campaigns. With certain items you can make a restricted number of units available to consumers so that only exclusive customers will be able to enjoy them. To make it work, be sure to indicate the number of units and the launch date.
- Alerts showing the number of people viewing the same offer at the same time. These people instantly become competitors who urgently need to be beaten.
Launch discount campaigns
Discounts are also a strong motivation for buying. The classic “save 20% now” messages are effective because they appeal to this loss-aversion bias. In addition to calls to action, it is advisable to show the previous price. This will allow customers to compare prices and value what they are gaining, if they decide to take the plunge and purchase.
Creating a sense of urgency is crucial as discussed above. You can include a time limit in your discount campaigns that forces consumers to make purchases faster, in a time window set by the store. A great example of this is Amazon’s “flash deals”.
Ultimately, due to the relationship of loss-aversion bias with individual behaviour, you can combine these strategies. Tailored pricing for each target market will increase their interest in the e-commerce store. Using today’s price intelligence tools you can define your pricing strategy to maximise profit.
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