Why Marketers Should Be Wary of Loss Aversion and the False Consensus Effect

Why Marketers Should Be Wary of Loss Aversion and the False Consensus Effect

Nadeem Manzoor, Director of Innovation & Analytics | February 16 2024

We’ve all been there before – we’re online shopping and suddenly a countdown timer pops up, screaming “Only 2 left in stock!” We panic, toss a product we barely know anything about into a cart, and hit “buy” without blinking. This marketing message triggered loss aversion or “the fear of missing out,” causing us to panic buy something without making an informed decision.

Marketers are masters at tapping into powerful psychological biases like loss aversion. And, when done correctly, it can be a very powerful tool.

However, what happens when these tactics are overdone? What type of effect can it have on your brand?

Similarly, the false consensus effect, which states individuals tend to believe that their own opinions and actions are more common than they really are, can cause marketers to have a distorted perception of reality. What happens when marketers fall victim to the False Consensus Effect? Well, it can cause all sorts of issues from targeting the wrong audience to crafting the wrong messages.

In this article, we reveal why marketers need to be wary of loss aversion and the false consensus effect. We’ll also uncover ways to connect with your audience to build trust, transparency, and genuine connections with consumers.

Loss Aversion: The Fear of Missing Out

Seasoned marketers are well-versed in loss aversion tactics – perhaps, without even realizing they’re leveraging the powerful psychological bias.

Loss aversion says we tend to feel the pain of losing something much more intensely than the pleasure of gaining something of equal value. In simpler terms, missing out hurts more than winning feels good.

Chances are good you can pinpoint a time that loss aversion played a role in your life. Maybe it was when you were online shopping and the “almost sold out” notifications pushed you to act before you lost the chance. Maybe it was a time you lost $20 on the street – how did that feel compared to finding $20 on the street? Science says we are hardwired to feel worse about losing the $20, than we are to feel happy about finding $20.

How Do Marketers Use Loss Aversion?

Scarcity tactics: Limited-edition offers, "almost sold out" notifications, and countdown timers create a sense of urgency and scarcity, pushing you to act before you lose the chance.

Free trials with high cancellation fees: These capitalize on the initial excitement of getting something for free, knowing the pain of losing access will likely outweigh the effort of cancelling when the real cost kicks in.

Loss-framed discounts: Instead of highlighting the gain (e.g., "save 20%"), they emphasize the loss you'd incur by not taking advantage (e.g., "don't miss out on 20% off!").

Why Marketers Need to Be Careful of Loss Aversion

While using loss aversion tactics can be powerful, marketers need to be careful not to overdo it, or else they’ll run into a few snags. Here are several key reasons marketers need to be careful of loss aversion.

  1.   It encourages impulsive decisions: Creating urgency can be a successful tactic, but sometimes it can pressure consumers into making quick choices without fully considering their needs or budget. Unfortunately, this can lead to buyer’s remorse, and even worse, ultimately damage trust in the brand. Instead, focus on helping the customer make an informed decision about your product. This level of transparency and trust works better for long-term sustainable growth.
  2.   It can erode brand trust and credibility: Speaking of trust and credibility, overusing scarcity tactics (like countdown timers and fear-mongering messages) can come across as manipulative. Is that how you want your brand to appear? Consumers are increasingly savvy and appreciate transparency. Relying on loss aversion tactics can backfire and send the wrong message.
  3.   It may not be sustainable: If you’re looking to build brand loyalty solely on “the fear of missing out,” it’s probably not a sustainable tactic for long-term growth. Consumers eventually see through these tactics, and you’ll likely see sales dip over time.

Remember, when it comes to leveraging urgency driven tactics and loss aversion, it’s a balance – you want to avoid overdoing it.

Instead, focus on conveying genuine value propositions by highlighting the unique benefits and features of your products. You can build trust and transparency by personalizing your messaging to your target audience. And, finally, you can encourage your customers to leave you reviews to help others make informed decisions. The bottom line – sprinkle in some urgency, but don’t overdo it.

The False Consensus Effect: A Distorted Perception of Reality

The False Consensus Effect is a cognitive bias that leads individuals to overestimate the extent to which their beliefs, preferences, or behaviors are shared by others. People tend to believe that their own opinions and actions are more typical or common than they really area.

Consider this example: Let’s imagine you are a passionate vegetarian. You believe in animal rights and the environmental benefits of a plant-based diet. You regularly participate in online forums and discussions about vegetarianism, where everyone seems to share your views. This experience strengthens your belief that most people agree with you and are likely also vegetarian or considering becoming one.

However, your perception might be skewed by the false consensus effect. You spend most of your time in communities focused on vegetarianism, so it’s natural to encounter others who share your values. Meanwhile, most of the population might not follow the same diet, but you wouldn’t be exposed to their perspectives as readily.

The False Consensus Effect could be problematic for brands, as marketers need to remember they differ from their consumers. A key difference is that marketers are maximizers, not satisficers.

Simon, a psychologist at Carnegie Mellon, coined the terms ‘maximizers’ and ‘satisficers’ in 1957. A maximizer is an individual who spends considerable time and effort finding the ideal product in a particular category. On the other hand, a satisficer are those who will settle for a product that meets their criteria.

Most marketers are maximizers in their category, while most consumers are satisficers.

Consumers aren’t necessarily aiming for the absolute best option, but rather the good enough one. This “good enough” choice often comes down to avoiding social consequences like embarrassment or regret, rather than trying to stand out or dominate others.

If we think about it this way, most of the spending power in any market comes from people who make decisions based on satisficing. They aren’t trying to find the cheapest or the most expensive option, but rather the one that meets their needs. Consumers often choose products they see their peers using, creating a sense of conformity and acceptance.

Think of it this way: Imagine you’re buying a new pair of jeans. Instead of searching for the absolute top-of-the-line brand or the absolute cheapest option, you might choose a brand that’s popular with your friends and is within a comfortable price range.

On the other hand, marketers are usually trying to stand out in a crowded marketplace by explaining why they have the “absolute-very-best” product on the market. Striving to convey perfection often leads to a focus on details that are irrelevant to the consumer. In contrast, reassurance comes from the reputation of the brand, the popularity of the brand.

Why Marketers Need to be Way of The False Consensus Effect

There are several reasons marketers need to be careful with the False Consensus effect. Let’s dive in.

  1.   Marketers might misread the target audience: When marketers assume everyone shares their own preferences or beliefs, they risk creating messaging and products that resonate poorly with the actual target audience. For example, perhaps affordability isn’t a key attribute that the target audience is interested in, but the marketer is extremely cost-conscious. This can create the wrong value proposition. That’s why it’s so important to fully understand the needs and desires of the target audience.
  1.   It can lead to ineffective targeting: Using data to understand the target audience is crucial. If marketers fall victim to the false consensus effect and rely on their own perceptions instead of data and research, marketers might spend dollars or resources targeting the wrong demographics or use ineffective messaging.
  2.   It can create a damaged brand image: Using tactics that exploit the false consensus effect can backfire. For example, if a marketer or brand makes a bandwagon appeal that “Everyone’s using this!” it could create a perception of being out of touch, inauthentic, or manipulative. Remember, customers value honesty and transparency – they don’t want to feel tricked into making a purchase.
  3.   It can lead to missed opportunities: When marketers assume everyone wants the same thing, they miss out on opportunities to differentiate themselves and cater to diverse needs. When marketers can effectively focus on understanding individual preferences, they can unlock new market opportunities. That’s where the growth happens!

In order for marketers to not fall victim to the false consensus effect, be sure to embrace data-driven decisions. Quantitative and qualitative research is the best way to understand your target audience, and it can help you create and build lasting, genuine connections with your target audience.

Remember, you can’t assume that everyone thinks like you. Embrace diversity, seek out different perspectives, and step outside of your bubble.

For marketers, it’s important to put yourselves in the shoes of the consumer, and better yet, get to understand your target audience. Success lies in understanding your audience, not imposing your own beliefs. By acknowledging the false consensus effect and embracing a data-driven approach, you’ll build a brand with sustainable growth and loyal customers.

Don’t Overdo It: Build Genuine Connections with your Audience

The moral of the story is when it comes to marketing is that you can’t overdo tactics like loss aversion. And, you want to avoid imposing your own beliefs onto your target audience. Remember, consumers are savvier than ever, and it’s a good idea to focus on transparency and authenticity to build long-term loyalty.

Want to learn how to build a genuine connection with your audience that leads to sustainable, long-term growth? The experts at Function Growth can help. We've helped direct-to-consumer e-commerce brands leverage behavioral science effectively to build brands. Get in touch with us today.