In his latest musing for B&T, Leif Stromnes, managing director for strategy and growth at DDB Australia, explains why we (and most other animals) have a fear of losing more than a longing to win and what it means for marketers.
Evolutionary biologists have long known that animals defending their lair or burrow from attackers are more than twice as successful in winning the duel. It’s what the great ethologist John Maynard Smith calls an Evolutionary Stable Strategy, or ESS.
To demonstrate just how powerful this primal behaviour is, biologist Niko Tinbergen conducted an experiment of ingenious simplicity. He had a tank containing two male stickleback fish. The males had each built nests at opposite ends of the tank, and each ‘defended’ the territory around his own nest.
Tinbergen placed each of the two males in a large glass test tube, and he held the two tubes next to each other and watched the males trying to fight each other through the glass. Now comes the interesting result.
When he moved the two tubes into the vicinity of male A’s nest, male A assumed an attacking posture, and male B attempted to retreat. But when he moved the two tubes into male B’s territory, the tables were turned. By simply moving the two tubes from one end of the tank to the other, Tinbergen was able to dictate which male attacked and which retreated. Both males were evidently playing the immortal evolutionary strategy: ‘if resident, defend like crazy; if intruder, retreat from probable defeat’.
This insight is true of all animals, and humans too. The ongoing war in Ukraine is an example of stubborn and seemingly impossible resistance in the face of an attacker with far superior numbers and resources. It seems Putin underestimated Ukrainians determination to defend their land.
This evolutionary bias to disproportionately value and defend what is ours influences our current day behaviour and led Nobel Prize winning behavioural economist Daniel Kahneman to coin the phrase “loss aversion”. Loss aversion asserts that the pain of losing something is felt more acutely than the joy of gaining something of similar value.
There are many examples of this bias in action. One of the most illustrative is the Italian drivers licence points system. In most countries in the world, including the United Kingdom and here in Australia, drivers start with zero points and accumulate demerits, normally two at a time until a certain number is reached whereupon the driver is forced to retake the test. In Italy, it is reversed. Drivers start with 20 points, and demerits are taken away for driving indiscretions at the same increments as in other countries. Incredibly, and despite Italians being known as car loving petrol heads, driving compliance in Italy is far superior to that in the UK. It isn’t solely down to the loss aversion bias, but research has shown that the acutely felt pain of losing, rather than gaining driving points is a powerful motivator to obey the rules of the road.
The influence of loss aversion extends into marketing in very powerful ways. When Land Rover announced that the original Defender model was to be discontinued, the stock that was on showroom floors more than doubled in price as scarcity and feelings of missing out on owning this legendary vehicle grew.
We see similar phenomena in Boxing Day sales when customers line up for hours before a store opens to secure the limited sale stock. And we know travellers are more emotionally affected when they drop a tier in their frequent flyer status versus going up to the next level.
The emotional strength of loss aversion creates advantage in all marketing contexts, but not all tactics work equally powerfully. A deadline tactic, like “sale ends tomorrow” for instance is not as powerful as a limited supply tactic, such as “only one hotel room left”.
Previously abundant, but now scarce, is more powerful a tactic than a constant scarcity tactic, like that carpet store that is always on sale.
More powerful still is the now scarce tactic, but with knowledge about the impending scarcity in scarce supply too, for example, “I’m phoning to let you know that we are down to our last unit for sale”.
But the most powerful tactic of all is scarcity due to increased demand, especially when we, the consumer is part of the competition for the demand. Property auctions work in this way. In these situations, we no longer value the item based on its fair price or perceived quality, but purely on its scarcity appeal. Our motivation is not to drive the item, or wear it, or live in it. Our motivation is to simply own it because we now cannot imagine life without it.
One of the most famous stories in all of marketing is the catastrophe that was the “New Coke” launch in the USA in the 1980s.
Theories abound about why consumers consistently rated New Coke better in blind taste tests but rejected it when it was offered for sale.
Given what we now know about our loathing for relinquishing what we believe to be ours, it seems plausible that it had nothing to do with taste, or with our affection for our “old Coke”. We simply hated the idea of losing something we previously owned, more than we loved the idea of gaining something brand new.
