Join Chris Nodder for an in-depth discussion in this video Scarcity and loss aversion, part of Persuasive UX: Harnessing Illogical Reactions.
Companies often get you fired up to buy something by making you think it's scarce, either in terms of quantity or availability. For instance, you'd think that when a company releases a new product just before the holidays, it would be in their interest to have massive stocks available so we all rush out and buy it. But, actually that isn't always the case. Sometimes, the buzz created by the exclusivity of being able to find a scarce product, is sufficient to create a rush of panic buying and an additional level of desirability for the product.
Also, a lot of the people who promised the new product as a gift to someone, but couldn't find it, will still buy it after the gift giving season. Even though they bought a different gift. It's win win for manufacturers and retailers. This is the Tom Sawyer effect in action. In Mark Twain's book, Tom Sawyer got the other kids to work for him because he convinced them that it was an infrequent event. Does a boy get a chance to whitewash a fence every day? Only open to select individuals with sufficient skill, I reckon there ain't one boy in a thousand, maybe two thousand, that could do it the way it's got to be done, and where demand was greater than supply.
If he hadn't run out of whitewash, he would have bankrupted everybody in the village. Tom pushed all the right buttons that turned scarcity into desire. Twain summed this up by writing in order to make a man or a boy covet a thing, it's only necessary to make the thing difficult to attain. Humble Bumble does the same thing with their online software offers. You can get a great deal on a set of games but only for a limited time, which introduces an element of scarcity. Paying more than the average also nets you extra content such as soundtracks adding exclusivity.
Because of this, the average price tends to rise over the course of the offer, which increases the element of competition. You can elect to donate a proportion of your payment to charity to make you feel better, and add extra justification for the purchase. All in all, even if you hadn't been planning on purchasing all the games, or if you already own some of them, the limited time offer provides a good incentive to get the whole bundle while it's on offer. So far, we've been talking about people's illogical reaction towards something they want to own. Well, what about the other side of things? Fear of losing things you already own, which is known as loss aversion.
Imagine you are given a one dollar bill. You hold it in your hand. Now, you have the option of keeping the money or of gambling it on a coin toss where you can either win $2.50 or lose the dollar entirely. What do you do? If you're like most people, then even when this task is repeated 20 times, you'll still only gamble your dollar bill on 11 or 12 of the rounds. And, if you do lose your dollar in one round, you'll be much less likely to gamble in the next round. As the rounds progress, you'll be less likely to gamble at all.
Now, the thing is, it actually makes sense to gamble on every round. On average, each round where you gamble will net you $1.25, because you'll win the coin toss half of the time. So, why don't we follow this rational course? It seems that our emotions can get in the way of making logical decisions. This is especially true when the logical decision involves giving up something that we already have. In fact, it takes individuals who have brain damage that causes problems in processing emotions to perform more sensibly in this test.
Even though there is the potential to earn more money, there's also the potential to lose what you're already holding in your hand. Our fear of losing what we already have, our loss aversion, can be up to twice as powerful as our desire to benefit from a potential gain. Of course, you can tap into people's loss aversion when you create expressive designs. One way to do this, is to start people's membership with a certain level of service included free of charge. Subsequent fear of losing this free level of service means they'll pay more to keep it than they would've paid to obtain it in the first place.
Obviously, once people start using a service they also create data and artifacts, photos, documents, contacts and so on, that are tied to the service. Any time a customer attempts to cancel their membership, you can also reinforce just what they'll lose. There's a lot tied up in social capital. That is, the friends and colleagues with whom the data's shared, that can't necessarily be replicated elsewhere. Instilling doubt in these situations simply involves pointing out what people might lose by closing their account or migrating their data.
Facebook does this when people try to close their account, pulling names from the persons own friends list and suggesting that those individuals would be sad to see the person leave. This is a simple, yet very powerful way to introduce loss aversion. You can also instill doubt in order to get people to choose an option that you prefer. In Google Voice, for instance, choosing particular settings leads to a prompt that's designed specifically to instill doubt in customers' minds. The option is still available, but because Google rightfully don't recommend it, they make users think twice and feel bad for selecting this option over the safer alternatives.
Let's sum up how you can use scarcity and loss aversion to create persuasive designs. First, find ways to include one or more of the three elements of scarcity into your product to ensure that people desire it. Use infrequency by making it clear that the offer or the event is only available for a limited time. Use exclusivity by promoting items as being only available to certain people. Of course, it's up to you to determine what the criteria are for qualifying. Lots of exclusive items seem to be available to pretty much anyone who asks, but that doesn't stop people from thinking they got something special.
To make use of competition, you just have to show that there are many others who are also interested in the scarce resource. You can do this through showing the number of orders placed, or the small number of items left in stock. Loss aversion is strongest when people have recently experienced the benefits of the product or service. If a customer is counseling after a period of inactivity, find a way to convince them to use the product again. For instance, by offering a free month of service or access to a premium feature. So, they'll feel the loss more keenly. If people really do seem determined to quit, then on your cancellation form invoke loss aversion by asking, which of these features will you miss the most.
This may be sufficient to pull customers back from the brink and it's still useful information to know regardless of the outcome. Of course, loss aversion is also used for in less dire circumstances then someone canceling their membership. If you use it carefully and only occasionally, you can use loss aversion to remind users of what they might lose by not choosing your prefered option. In all these situations, it's important to frame the doubt in terms of what people may lose by choosing your undesired option. Although that's a double negative, it has more power than reminding people of what they might gain by choosing your desired option.
People feel loss much more powerfully than gain. So, it's easier to manipulate them through doubt about negative outcomes. The magic of loss aversion will do all the rest for you.