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NeuroTactic Overview

Endowment Effect

When we feel a sense of ownership around something, we give it a higher value than if we didn't own it. In an experiment with coffee mugs and chocolate, study participants showed a higher preference to keep an item they were previously given rather than trade it for another item of similar monetary value.

SUMMARY:

When we feel a sense of ownership around something, we give it a higher value than if we didn’t own it. In an experiment with coffee mugs and chocolate, study participants showed a higher preference to keep an item they were previously given rather than trade it for another item of similar monetary value.

This effect is caused by a difference between the price we are willing to pay for an item and the price we are willing to accept to part with it. Free trials make use of this effect to a great degree by giving prospective customers a sense of ownership over a product before they have paid to acquire it. Thus, when the trial is over, their “selling price” for the item has become higher than what you are charging for it, which causes their willingness to pay a higher price to increase.

To put this effect to work in your marketing, try to think of creative ways of getting your customers involved with your product prior to the purchase. This could be a free trial, test drive, or sample. If you operate a service business, this could be a discovery period with a customized deliverable, such as a tailored action plan. Having ownership over this deliverable asset will trigger the Endowment Effect and increase the perceived value of your service through a heightened sense of ownership and control.

Primary Source:

Knetsch, J. L. (1989). The endowment effect and evidence of nonreversible indifference curves. The American Economic Review, 79(5), 1277-1284.

Dream Category:

Desire

The DREAM framework, created by Vivid Labs, represents a research-backed framework for effective marketing messages. It stands for Desire, Routing, Emotion, Attention, and Memorability.

AIDA Category:

Decision, Action
AIDA is a well-known framework for assembling a marketing message. It stands for the four steps of human decision-making: Attention, Interest, Decision, and Action.

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