By Dan Monheit 9.10.20
Question submitted by Sophia, Glenelg
The second-hand market is a brutal place Sophia, and if it’s any consolation, you’re not alone.
Whether we’re selling our freshly detailed Hyundai i30, our ‘as new’ iPhone 11, or our ‘never dropped, never crashed’ carbon framed road bike, the situation is the same; hours of market research, perfectly cropped photos, well crafted copy, a very reasonable price… and then nothing.
If you’re lucky, you may get to waste a few hours on a couple of tyre kickers, or have your ego bruised with an offensively low ‘today only, cash price’ offer, but all in all, things seldom go to plan.
It seems odd. You’re a smart person. You know the real value of the thing. After all, you’re the one who’s been using it until now!
Why doesn’t anybody else agree?
What’s at play here is the Endowment Effect, a bias that refers to our tendency to believe that something is worth more, simply because we own it.
Unfortunately, that means that whatever you think your car is worth is just that; what you think your car is worth. To anybody else, it’s just a car, which is always going to be worth less.
The Endowment Effect was demonstrated in a series of studies conducted by Kahneman, Knetsch, and Thaler throughout the 1990s. In one study, university students were randomly assigned into one of two groups; Sellers or Buyers.
Sellers were given a coffee mug and asked how much they’d be willing to part with it for. Buyers were shown the same coffee mugs and asked how much they’d be willing to pay for one. On average, sellers wanted $7.12, while buyers were only willing to pay $2.87. The difference? Ownership.
From an evolutionary perspective, it makes sense that we’d be wired to overvalue what we already own. For most of our existence, resources were scarce and difficult or dangerous to come by. While finding an additional day’s worth of food would have been a nice bonus, losing a day’s worth could have been catastrophic.
Valuing, and therefore protecting what we had, undoubtedly kept us safer for longer. While most things are much easier to get a hold of these days, the bias is still deeply entrenched in our psyche.
For brands, the key takeaway is finding ways to make it easier for prospective customers to feel like our product is already theirs. This could be done through free trials, test drives, ‘light’ versions, co-designing and more. Creating a premature sense of ownership will make walking away feel all the more painful, and closing the deal far more likely.
PS If you missed last week’s, you can still find out why you get so many notifications about the status of your parcel here.
Bad Decisions Podcast
Learn more about the Endowment Effect and how brands can use it on episode 4 of the Bad Decisions Podcast.
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Check out Dan’s short write up in AdNews on why the marketing industry should be celebrating the 2020 budget.