How is it that an old jar (pics below) sold for over $55,000 on eBay? How is it that a rubber duck sold for over $100 and a corn flake sold for $1,350? Would you pay such amounts for these things? Would it make a difference to you if I said that the jar has a ghost in it, the rubber duck is haunted, and the corn flake is shaped like the state of Illinois? For the people who bought the items at these ridiculous prices, those stories did make a difference.
If there is one crucial thing marketers should understand about consumer psychology, it’s how consumers place value on things. The first step to realize is that humans are rarely rational in this subject.
In the cases with the majority of ridiculous things sold on eBay, when objects that are worth extremely little are given a story and are endowed with some form of ‘meaning’, their value substantially increases. Whether we realize it or not, this is something we see all the time when it comes to marketing and business. It all stems from the idea of the endowment effect.
The endowment effect is a cognitive bias that once we own something, it’s value increases in our eyes. It begins to mean more to us. We overvalue things just because we own them and we become illogically connected to those things. We equip our identity with them. For example, real estate prices are often subject to the endowment effect – the seller’s asking price quite often exceeds the consumers’ willingness to pay. When we have lived in a house for so long, it becomes our home and the value of our home, is much higher for us than the value of the house. Just take a look around your room and think of what value you would place on the items you own and ask yourself how reasonable that is.
There was a study done involving two groups of people and coffee cups. One group was given the coffee cups to keep and after some time, were asked to assess the value of the cups. The other group was just asked to estimate the values of the cups. The result: the individuals who were given the cups to keep and who felt the ownership of them, constantly valued them higher than the other group. In several cases, the individuals who owned the coffee cups said that they would much rather keep the cups rather than sell them!
Businesses have realized the power of the endowment effect. Especially when they realized that the feeling of ownership in consumers INCREASES how much consumers are willing to pay for a product. Why do you think car salesmen are more than happy to take you on a test drive before you make your decision to purchase? Why do you think you’re almost always able to download ‘free trials’ before having to pay for the full version?
Now that you know this, you will start noticing strategic and effective use of the endowment effect in businesses everywhere. The next time you walk into a clothing store, you’ll realize the strategy behind fitting rooms. The next time you walk into an Apple store, you’ll realize why they allow you to spend hours using their products. The next time you’re offered a sample of anything, you’ll understand what’s happening on a very fundamental level.
So how can we as marketers, harness the endowment effect in our business and marketing strategy? What are some creative ways to stimulate a feeling of ownership in the customer?
One way I can think of is to try to get your products into the hands of key influencers in your industry (bloggers, social media celebrities, etc.). Once they own your product or service, once they equip it with meaning for themselves, they will be sure to advocate it. Another way is to always try to get your customer to take your product home and use it. The best way to do this is to always offer 100% full-refund if the customer is not satisfied – and emphasize that. Stress the fact that there is no harm in just “trying” the product, and if they’re not satisfied, they can get a full refund – no questions asked.