How to Boost Online Sales by Leveraging the Loss Aversion and Messenger Effects
Kyle Hoffman, Director of Growth Strategy | November 16 2023
Imagine walking down the street and finding a $10 bill on the ground. It’s your lucky day! You might feel happy for a few minutes, decide to buy some ice cream, and go along with your day with an extra pep in your step.
Now imagine a different scenario: You are walking down the street and pull out your wallet to pay for your ice cream and the $10 bill you had in your wallet is gone. You lost it somewhere along the way. It’s enough to make you feel angry and sad – especially because now you can’t buy that ice cream you were dreaming about all day.
This is a classic example of loss aversion, an interesting psychological concept that plays an important role in decision making and consumer behavior.
Loss aversion suggests our losses hurt about twice as much as our gains make us feel good. As humans, we are hardwired to be attached to our things, and we tend to be anxious and fearful to give things up. And the more we have, the more vulnerable we are.
Another influential force in the world of consumer behavior is the Messenger Effect, which suggests celebrities, authoritative sources, and influential figures have the power to shape consumer perceptions and behavior. The Messenger Effect explains why celebrity endorsements are so effective, and why brands are willing to pay thousands (or millions!) of dollars to have a likeable celebrity spokesperson. Their credibility and authority make the messages they convey all the more compelling.
Together, these two psychological concepts can be used in the world of marketing to boost e-commerce sales, drive brand loyalty, and shape consumer perceptions. Let’s take a look at how e-commerce brands can use these concepts to their advantage and create a powerful strategy for success.
The Concept of Loss Aversion Explained
Nobel Prize-winning psychologists Daniel Kahneman and Amos Tversky discovered the psychological phenomenon of loss aversion during their research on Prospect Theory. Their research It’s clear that people are more motivated by the fear of losing something than by the prospect of gaining it. The fear of loss is deeply ingrained in the human psyche.
While we often indulge in buying things like a larger home, a new car, or maybe a luxury handbag or watch, we often tell ourselves that we can downsize or sell the luxury goods if we can no longer afford those purchases. However, the reality is that downsizing to a smaller home or getting rid of a car we can’t afford is psychologically painful.
Even for those who are considered wealthy, the pain of losing their fortune can often outweigh the emotional gain of acquiring additional wealth. This highlights a universal human trait – our innate aversion to loss.
Loss aversion influences decision-making across various aspects of life, not just in consumer choices, however, brands can tap into this psychological principle to influence consumer decision-making.
Take Booking.com, for example. The online travel platform strategically uses loss aversion in the hospitality industry. When users search for accommodations, Booking.com displays messages like “Only 1 room left at this price!” or “10 people are viewing this property!” These messages tap into customers’ fear of missing out on a great deal. Travelers are more likely to book a room promptly when they believe they might lose out on something like their preferred option or a special rate.
How to Use Loss Aversion in E-Commerce Marketing
There are a few different ways to leverage loss aversion in your e-commerce marketing strategy to tap into consumer hearts and minds and motivate them to take action.
When reviewing these tactics, it’s important to note that the over-use of urgency will actually dilute your message. If your store is screaming “flash-sale” every week, your customers are less likely to pay attention, and you could even lose their trust. Use these tactics strategically and sparingly in your marketing mix to drive sales and boost conversions.
Creating a sense of scarcity
Ever hear of the term “FOMO?” It stands for “fear of missing out,” -- and no, we’re not talking about missing out on a fun party on a Saturday night.
Loss aversion is closely tied to the fear of missing out. In order to tap into “FOMO,” e-commerce brands can create a sense of scarcity around their products. Flash sales, limited time offers, and low-stock notifications can nudge consumers into action.
If you’ve ever shopped on a clothing brand's website and have seen a message pop up that says, “Hurry! This item has been added to 47 carts in the last hour,” it’s because they are trying to create a sense of scarcity. By highlighting what customers stand to lose if they don’t act quickly, you can drive conversions and sales.
Emphasize What Could Be Lost
As marketers, we tend to focus on what makes our products better – the benefits of the product, the unique features, and advantages. Now, what if we reframed our content to emphasize what potential customers might miss out on if they don’t make a purchase? For example, if you’re selling a fitness product, you could emphasize the missed opportunity for improved health and well-being. Or, if you’re selling an online course, instead of solely promoting the benefits of your educational service, you can emphasize what learners might miss on it if they don’t enroll.
Urgency and Time Constraints
Loss aversion is even more powerful when coupled with a sense of urgency. Amazon is the king of using urgency and time constraints to drive purchases and influence consumer behavior. They use countdown clocks, “Lightning deals,” and limited-time promotions to create urgency in the mind of their customers. When people feel like they might lose out on a deal, they are more likely to act quickly.
Abandoned Cart Recovery
A great way to gently nudge your customers to take action is to send follow-up emails reminding them of the items they left in their shopping carts. You can remind them of what they’re missing and encourage them to complete their purchase. Try sweetening the deal by adding a limited-time discount!
Do Celebrity Endorsements Matter? A Closer Look at the Messenger Effect
The Messenger Effect is a powerful tool in consumer behavior, shedding light on the impact celebrities, authoritative figures, and influencers can have on shaping perceptions and driving actions. As a result, brands are willing to invest substantial sums in securing a likeable celebrity spokesperson to add weight to the messages they convey. For example:
- This past fall, pharmaceutical giant Pfizer enlisted the help of Kansas City Chief’s tight-end Travis Kelce to encourage people to get the Covid-19 and flu vaccines.
- As part of one of the most iconic partnerships of all time, Michael Jordan teamed up with Nike to create the Air Jordan line. The collaboration began in 1984 and has since become a cultural phenomenon, contributing to Nike’s overall success in the marketplace.
- Other examples include Oprah Winfrey teaming up with WeightWatchers, Jennifer Anniston for SmartWater, American Express partnering with comedian Tina Fey, and Coca-Cola recruiting singer Selena Gomez.
For years, celebrity endorsements and the messenger effect have worked as powerful influencers. Why? If a trusted celebrity endorses a product or service, their stamp of approval can significantly sway consumer opinions. The Messenger Effect relies on the psychological principle that individuals tend to be more receptive to information and suggestions when they come from a source they perceive as credible or authoritative.
Today, influencers have emerged from social media platforms like Instagram and TikTok, as social media stars have grown a large following and have the ability to connect with their audiences. These social media influencers can be instrumental in promoting your products, enhancing your brand image, and driving sales. In many cases, brands have “ditched” the traditional celebrity endorsements in favor of a social media influencer strategy because they are such an effective marketing vehicle.
While celebrity endorsements and influencers can be incredibly beneficial for brands, there are several “watch-outs” or considerations to keep in mind to ensure a successful partnership:
- Authenticity: Make sure the partnership feels authentic and aligns with the values of both the celebrity (or influencer) and the brand. It’s important to choose a spokesperson whose image and personal brand resonates with your product or service. Consumers will be quick to call you out if they feel there is a disconnect or perceive the endorsement as insincere or opportunistic.
- Avoid overexposure: Be wary of overexposure. If a celebrity or influencer is endorsing multiple products simultaneously or appears in too many campaigns, it can dilute your brand’s message.
- Protect the brand’s reputation: While aligning your brand with a celebrity or authoritative figure can be lucrative, it’s important to keep in mind that any controversies or public missteps by the individual can directly impact your brand’s reputation.
- Crisis management: Have a plan in place for monitoring the celebrity’s activities and respond promptly to any issues that may arise.
By carefully navigating these considerations, brands can maximize the benefits of celebrity endorsements and influencer strategies.
Combining Loss Aversion and the Messenger Effect for Maximum Impact
Now, imagine the powerful effect that arises when you combine loss aversion with the Messenger Effect in your e-commerce strategy. The fear of missing out, combined with the influence of a trusted messenger, creates a compelling narrative that motivates consumers to take action.
One marketing campaign that successfully illustrates the importance of celebrity endorsements and the Messenger Effect can be found in the iconic “Got Milk?” campaign. The campaign ingeniously merged the influence of celebrities as messengers with the psychological impact of potential loss, creating a memorable and highly effective marketing strategy.
In the “Got Milk?” ads, celebrities were portrayed with a milk mustache, showcasing the product in a way that resonated with the audience. Simultaneously, the campaign leveraged loss aversion by focusing on what they’d miss out on if they didn’t have milk instead emphasizing the benefits of milk consumption. In this case, the absence of a milk mustache symbolized a missed opportunity for a wholesome and essential beverage.
Using celebrities to emphasize what people would miss out on if they didn't have milk, the dairy industry ultimately generated over $1 billion in sales. The combination not only made the message more impactful but also transformed a rather “boring” industry and mundane product into a cultural phenomenon.
Leveraging Loss Aversion and the Messenger Effect
Understanding and harnessing behavioral science tactics like loss aversion and the Messenger Effect can be the key differentiator between a mediocre marketing strategy and a highly successful one. By strategically incorporating scarcity, urgency, and influential messengers into your campaigns, you tap into the innate human tendencies that drive decision-making.
Remember, the goal is not just to sell a product but to craft an experience that resonates with your audience on a deeper level. By leveraging the interplay between loss aversion and the Messenger Effect, you can create a compelling narrative that captivates consumers, drives brand loyalty, and ultimately leads to a significant boost in online sales.
Interested in learning more about loss aversion and the Messenger Effect? Check out our recent podcast on the Behavioral Science Lab, “Milk, mustaches, and the Messenger Effect,” and get in touch with the behavioral science experts at Function Growth for expert advice on how to boost e-commerce sales.