{"id":651,"date":"2017-05-11T04:00:15","date_gmt":"2017-05-11T04:00:15","guid":{"rendered":"https:\/\/web_staging_fern.staging.cartstack.com\/blog\/?p=651"},"modified":"2020-11-11T20:51:55","modified_gmt":"2020-11-11T20:51:55","slug":"price-anchoring-loss-aversion-ecommerce-marketing","status":"publish","type":"post","link":"https:\/\/www.staging.cartstack.com\/blog\/price-anchoring-loss-aversion-ecommerce-marketing\/","title":{"rendered":"Price Anchoring &#038; Loss Aversion: Essential Marketing Tactics"},"content":{"rendered":"<p>Imagine walking into your local grocery store and seeing literally hundreds of partially-full, yet totally-abandoned shopping carts jamming the aisles. You could barely make it through the door and into the produce section through a mess like that. This chaotic reality is exactly what ecommerce marketers have to muck through daily as just a smidgen under 70 percent of online shopping carts get abandoned, on average.<\/p>\n<p>But there are ways of getting those shoppers back to claim <em>and<\/em> finally complete their purchases. It basically boils down to creating a sense of urgency that prevents people from just walking away from a full shopping cart. You could compare the following two psychologically compelling techniques to a carrot and a stick. The carrot\u2014price anchoring\u2014makes a price look so good compared to other options that the customer is driven to purchase because they think it\u2019s a deal they can\u2019t pass up. The stick\u2014loss aversion\u2014taps into the customer&#8217;s overwhelming fear of losing something valuable.<\/p>\n<p>Let\u2019s break down how each of these techniques works and how you can apply them to boost your conversion rate while conversely lowering your <a href=\"https:\/\/web_staging_fern.staging.cartstack.com\/blog\/why-cart-abandonment-is-good-for-your-company\/\" target=\"_blank\" rel=\"noopener noreferrer\">cart abandonment<\/a> rate.<\/p>\n<h2>1. Price Anchoring Makes the Sale Again and Again<\/h2>\n<p>You might call price anchoring a mental bias towards the lasting first impression. In other words, a higher price displayed next to a lower price provides an anchor that makes the lower price (even if that price is also somewhat elevated) stick in the buyer\u2019s brain, making them think the lower price is an excellent deal they simply <em>must<\/em> take advantage of. It\u2019s completely irrational, but to the buyer it <em>seems<\/em> rational and logical at the time. They <em>feel<\/em> that they\u2019re making a smart purchase.<\/p>\n<p>Dan <span class=\"scayt-misspell-word\" data-scayt-word=\"Ariely\" data-scayt-lang=\"en_US\">Ariely<\/span>, a behavioral economist who recently gave this extremely interesting <a href=\"https:\/\/www.ted.com\/talks\/dan_ariely_asks_are_we_in_control_of_our_own_decisions\" target=\"_blank\" rel=\"noopener noreferrer\" data-cke-saved-href=\"https:\/\/www.ted.com\/talks\/dan_ariely_asks_are_we_in_control_of_our_own_decisions\">TED Talk<\/a> about how price anchoring works in our brains,&nbsp;showed that presenting <em>three<\/em> prices actually spurs&nbsp;buyer action better than just two price options. Here\u2019s the example he used:<\/p>\n<p>Let\u2019s say you want to buy a subscription to an interesting magazine and you have the following options:<\/p>\n<ul>\n<li>Online only: $49.99\/year<\/li>\n<li>Print only: $99.99\/year<\/li>\n<li>Online + print: &nbsp;$99.99\/year<\/li>\n<\/ul>\n<p>See what happened there? If you\u2019re like 84 percent of the people who responded to this offer, you chose the online + print version because it seemed like a way better deal than the print only option and quite reasonable compared to the online only option (which was chosen by only 16 percent of the respondents).<\/p>\n<p>In fact, many people wondered why the magazine even offered the print only option in the first place. But further tests showed the method behind their apparent madness. When that ridiculous print-only option was removed, this is what customers decided to purchase:<\/p>\n<ul>\n<li>Online only\u201468 percent of customers choose this option.<\/li>\n<li>Print and online\u2014only 32 percent of customers chose this.<\/li>\n<\/ul>\n<p>The print only option seemed useless to the customer, but to the online marketer, it translated in a much higher income. This is because the customer relied on the first bits of information given and based their decisions on that \u201canchor\u201d impression.<\/p>\n<p><strong>What this means for you as an online marketer:<\/strong> Experiment with placing premium products next to standard ones, regardless of what product or service you\u2019re selling. But instead of just going with two price options, consider placing a somewhat irrationally-priced third option into that mix to make the premium option seem like a better deal than the standard option; hint&nbsp;that it won\u2019t last&nbsp;long.<\/p>\n<p>Speaking of not lasting for long, on to loss aversion\u2026<\/p>\n<h2>2. Loss Aversion Makes it Scary <em>Not<\/em> to Buy<\/h2>\n<p>Back in 1979, psychologists Daniel <span class=\"scayt-misspell-word\" data-scayt-word=\"Kahneman\" data-scayt-lang=\"en_US\">Kahneman<\/span> and Amos <span class=\"scayt-misspell-word\" data-scayt-word=\"Tversky\" data-scayt-lang=\"en_US\">Tversky<\/span> put forward the idea that losing $10.00 was far more painful (and motivating) to human beings than the prospect of finding $10.00. You can see why this concept, originally called \u201cprospect theory\u201d became \u201closs aversion.\u201d In fact, their studies showed that the pain of losing was twice as powerful as the joy of getting a pleasant surprise.<\/p>\n<p><a href=\"https:\/\/science.sciencemag.org\/content\/313\/5787\/684?variant=full-text&amp;sso=1&amp;sso_redirect_count=2&amp;oauth-code=43b3f761-1a16-449d-8f93-b5dbd3b67dad&amp;oauth-code=a44b9a97-0563-4c65-809e-75cf39057219\" data-cke-saved-href=\"https:\/\/science.sciencemag.org\/content\/313\/5787\/684?variant=full-text&amp;sso=1&amp;sso_redirect_count=2&amp;oauth-code=43b3f761-1a16-449d-8f93-b5dbd3b67dad&amp;oauth-code=a44b9a97-0563-4c65-809e-75cf39057219\">Science Magazine<\/a> discussed another experiment illustrating how we humans find avoiding loss more urgent than winning something new. Study participants were handed $50 at the beginning and then given two options to choose from:<\/p>\n<ol>\n<li>Keep $30 of the $50, or\u2026<\/li>\n<li>Gamble the whole pot with an equal shot at either keeping the full $50 or losing the full $50.<\/li>\n<\/ol>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"img_responsive alignnone wp-image-661\" src=\"https:\/\/web_staging_fern.staging.cartstack.com\/blog\/wp-content\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-01-1.png\" alt=\"cartstack_loss_aversion_infographic\" width=\"600\" height=\"350\" srcset=\"https:\/\/cartstack-blog.s3.amazonaws.com\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-01-1.png 960w, https:\/\/cartstack-blog.s3.amazonaws.com\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-01-1-300x175.png 300w, https:\/\/cartstack-blog.s3.amazonaws.com\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-01-1-768x448.png 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>57 percent of the participants decided to keep the $30 and forgo gambling. But it gets more interesting with the next group of participants:<\/p>\n<ol>\n<li>Lose $20 of the original $50, or\u2026<\/li>\n<li>Gamble the whole pot with an equal shot at either keeping the full $50 or losing the full $50.<\/li>\n<\/ol>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"img_responsive alignnone wp-image-660\" src=\"https:\/\/web_staging_fern.staging.cartstack.com\/blog\/wp-content\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-02-1.png\" alt=\"cartstack_loss_aversion_infographic\" width=\"600\" height=\"350\" srcset=\"https:\/\/cartstack-blog.s3.amazonaws.com\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-02-1.png 960w, https:\/\/cartstack-blog.s3.amazonaws.com\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-02-1-300x175.png 300w, https:\/\/cartstack-blog.s3.amazonaws.com\/uploads\/loss_aversion_infographic_cartstack_cart_abandonment-02-1-768x448.png 768w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/><\/p>\n<p>In this study, only 39 percent chose to lose the $20 because the researchers put the game into a \u201closs\u201d frame, even though the game itself really hadn\u2019t changed <em>at all<\/em>. The very concept of losing that $20 was more painful than keeping the $30\u2014or even gambling, which 61 percent of the participants chose to do, simply by changing one word\u2014<em>lose<\/em>.<\/p>\n<p>To use loss aversion as an ecommerce marketing technique, you can test offers that frame <em>not<\/em> buying something as a painful loss. For example:<\/p>\n<p><em>Stop losing $75 a month on X\u2014buy Y instead. <\/em><\/p>\n<p>You have to imply to the customer that they already have something (their money), but that by not buying your product or service, they\u2019re actually losing their money to a choice that has less value. It\u2019s not about <em>saving<\/em> them money, it\u2019s about preventing them from <em>losing<\/em> their money.<\/p>\n<p>Another way of using loss aversion is by offering customers a chance to use your product or service for free for a limited time. If they really like and get used to using the product, they won\u2019t want to give it up at the end of the trial period, because that would be a loss. They\u2019re far more likely to pay or subscribe, particularly if you point out clearly what they\u2019ll be losing if they don\u2019t pony up.<\/p>\n<p>By the way, there\u2019s another trick to the \u201cfree trial\u201d period and loss aversion that you should know about. Many online marketers worry over the question of whether or not they should ask for credit card information <em>before<\/em> starting the free trial (\u201cdon\u2019t worry, we won\u2019t charge it until you cancel your free trial\u2026\u201d), <em>or after <\/em>the free trial period is over. Lucky for you, there is some good data to back up your decision here too. The <a href=\"https:\/\/blog.kissmetrics.com\/free-trial-is-over\/\" target=\"_blank\" rel=\"noopener noreferrer\" data-cke-saved-href=\"https:\/\/blog.kissmetrics.com\/free-trial-is-over\/\"><span class=\"scayt-misspell-word\" data-scayt-word=\"Kissmetrics\" data-scayt-lang=\"en_US\">Kissmetrics<\/span> Blog<\/a> pointed out that conversion rates as much as doubled for those marketers who did <em>not<\/em> require a credit card number up front.<\/p>\n<p>That\u2019s double the conversion rate for marketers who simply relied on the \u201closs aversion\u201d concept!<\/p>\n<p>Helpful hint: Conversion rates increased further for the companies who stayed in touch with their prospective customers via \u201cwelcome\u201d emails, emails with tips on how to use the product, and emails reminding them that their free trial period was close to ending.<\/p>\n<p>For more actionable ecommerce marketing tips and other tricks for getting those online shopping carts through the checkout line download our new ecommerce business guide &#8211; 70 Ways to Market Your Ecommerce Website.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Imagine walking into your local grocery store and seeing literally hundreds of partially-full, yet totally-abandoned shopping carts jamming the aisles. You could barely make it through the door and into the produce section through a mess like that. This chaotic reality is exactly what ecommerce marketers have to muck through daily as just a smidgen [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1735,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29,3,6],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Price Anchoring &amp; Loss Aversion: Essential Marketing Tactics<\/title>\n<meta name=\"description\" content=\"The carrot - price anchoring. The stick - loss aversion. 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