Loss Aversion
Definition:
Loss aversion is the subjective tendency to prefer avoiding losses over similar gains.
Impact:
Motivation
Increased motivation to avoid negative outcomes, like losing something.
Ability
Perform behavior to prevent potential losses.
Prompt
Trigger reminding of potential loss, encouraging preventive action.
Description:
Loss aversion is like the feeling where you'd rather not lose something than gain something of the same value. It's like when you really don't want to lose what you have, even more than you want to get something new.
This makes you make choices where you try to avoid bad stuff from happening, even if sometimes it means you might miss out on good things.
Principles
- Losses feel approximately 2,5 x more painful than equivalent gains
- People are more likely to choose the riskier option to avoid the loss
- Loss aversion leads to a preference for maintaining the status quo
- People tend to place higher value on what they already own
How to apply?
- Research your customers priorities and needs
- Highlight what customers miss without immediate action
- Frame benefits as losses due to inaction to motivate action
- Highlight limited quantities, time-bound promotions, or exclusive access
- Align pricing with what customers view as the reference price
- Set deadlines by introducing time limits for offers
Examples:
Argos
Application:
Why on Black Friday companies still make the biggest sales?
Impact:
The promise of Black Friday's massive discounts trigger loss aversion, making people fear missing those once-a-year deals and fuelling impulse buys for record-breaking sales.
Duolingo
Application:
Main component of Duolingo's streak strategy
Impact:
Duolingo app uses loss aversion by showing streaks or maintaining a daily learning habit. Users are motivated to keep their streak going to avoid losing their progress
Temu
Application:
Spin the wheel on Temu
Impact:
Temu's spin-the-wheel strategically uses loss aversion, emphasizing the potential gains of discounts and communicating 'losing chance' by not taking part.
Prime
Application:
Amazon’s clever way to keep the customers choose prime.
Impact:
Amazon's free Prime trial hooks customers with benefits like 2-day free shipping, exclusive deals and access to their streaming platform, then uses loss aversion to drive paid memberships.
Argos
Application:
Why on Black Friday companies still make the biggest sales?
Impact:
The promise of Black Friday's massive discounts trigger loss aversion, making people fear missing those once-a-year deals and fuelling impulse buys for record-breaking sales.
Duolingo
Application:
Main component of Duolingo's streak strategy
Impact:
Duolingo app uses loss aversion by showing streaks or maintaining a daily learning habit. Users are motivated to keep their streak going to avoid losing their progress
Temu
Application:
Spin the wheel on Temu
Impact:
Temu's spin-the-wheel strategically uses loss aversion, emphasizing the potential gains of discounts and communicating 'losing chance' by not taking part.
Prime
Application:
Amazon’s clever way to keep the customers choose prime.
Impact:
Amazon's free Prime trial hooks customers with benefits like 2-day free shipping, exclusive deals and access to their streaming platform, then uses loss aversion to drive paid memberships.
Booking
Application:
Booking nudges users to act fast
Impact:
Booking.com prompts quick decisions with "Only 1 room left!" messages, making users fear missing the perfect hotel deal.
Interaction Design Foundation
Application:
Interaction Design Foundation uses loss aversion to boost enrolment.
Impact:
Interaction Design Foundation highlights course enrolment numbers, playing on the fear of missing out on the knowledge and benefits user might miss if doesn’t enrol on time.
Sephora
Application:
The strategy of Sephora Beauty Insider
Impact:
Sephora's rewards tempt users with points for products, insider events, and birthday gifts, making signing out feel like a loss.
Tinder
Application:
How Tinder profits on FOMO?
Impact:
Tinder's premium "Rewind" feature let users undo missed matches – they know some people will be willing to pay to avoid that FOMO.
Gardenscapes
Application:
Why 100 million players got hooked on Gardenscapes?
Impact:
With over 100 million downloads, Gardenscapes cleverly uses daily rewards users can lose by skipping a day, fuelling their fear of missing out and keeping them coming back for more.
Dropbox
Application:
How Dropbox uses Loss Aversion?
Impact:
Dropbox gets users hooked on the convenience of their free storage, then hits you with a space limit, making it tempting to upgrade to avoid losing your stuff.
AI GPT Prompt
About
Experiment with this prompt to get ideas on how to use Loss Aversion for engagement and retention in your product.
Technique
Chain-Of-Thought
AI Type
LLM
Prompt
Based on the principle of loss aversion, identify common user pain points within [your product category] that could lead to user disengagement or drop off. Then, propose a chain of thought on how we can redesign our user experience or introduce features that make the perceived cost of leaving our service higher than the cost of staying, effectively using loss aversion to increase user retention.