Endowment Effect

Imagine this …

You’ve just bought a new robot vacuum, which means you’ll no longer need your old stick vac.

The stick vac was one of the first joint purchases you made with your spouse after moving in together. It holds some sentimental value, but you know you don’t need two vacuums. You decide to resell it on Craigslist.

You’d originally paid $450 for the vacuum, so you list it for $350. That seems like a great deal.

Later that day a woman responds to your listing and asks if you’ll accept $200 for it. 

You’re offended by her lowball offer. 

“What a jerk!” you think to yourself. This vacuum is still in near perfect condition.

You respond hastily telling her you won’t accept a penny less than $300.

She replies a few minutes later with a screenshot from the BestBuy website. Apparently, the same vacuum is on sale right now for $319. 

“I could buy a new one for nearly the same price,” she says. “My best offer is $250.”

When you see her response, you’re extremely annoyed.

You understand her perspective, but her offer still seems way too low.

What do you do?

Do you accept her offer or wait for a better one?

In today’s edition of Why We Buy, we’re taking a look at The Endowment Effect–why we place a higher value on objects that we own than ones that we don’t own.

Let’s get into it.


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The Psychology of The Endowment Effect 🧠

People tend to value items that they already own more highly than they would if they didn’t own them. This means that sellers often try to charge more for an item than it would cost elsewhere.

In a famous university study, researchers asked students how much a coffee mug was worth. Half the students received the coffee mug as a free gift before being asked to choose a price. The students who owned the coffee mug estimated it was 2X more valuable than the students who didn’t own it—that’s The Endowment Effect in action.

Embrace delegation

Inside Your Buyer’S Mind🧐

As sellers, we’re often irrational when it comes to pricing our own products and services. We place a higher value on our own stuff than it may be worth in the open market.

The Endowment Effect is multiplied when the thing we’re selling holds emotional value—like our first car, a child’s crib, or a product that we’ve poured our time and energy into for years.

From a marketing perspective, this can manifest in a number of ways… 

People are often willing to pay more to keep something they already own while new customers will be less inclined to pay the same asking price. Likewise, it’s difficult for people to let go of things they already own because the sense of value becomes inflated.

How To Apply This 🤑

Alright, so how can we apply this right now to sell more?

Offer Risk-Free Trials

Once your buyer already feels like they own the product, they’re less likely to return it. You could literally give the product to customers to try risk-free—like Casper did with their 100-Night Free Trial—or offer premium features to all new customers for free for a limited amount of time. 

Create Expiring Freebies

Give buyers a free coupon or gift to encourage them to make a purchase within the set timeframe. Once they feel ownership over the freebie, they won’t want to lose it. Uber used freebies to get people to download their app. The catch? The coupon for a free ride expired if they didn’t use it within the first week.

Embrace delegation

Test Your Pricing

The Endowment Effect leads many teams to overvalue their products or services. You should test your pricing assumptions with real buyers to ensure you’re aligned on the value of your offering. You can run a simple A/B test to see which price converts the best or use a tool like ProfitWell’s Price Intelligently software to test multiple tiers of pricing at once.

The Short of It 💥

Simply put, ownership creates value. If you can find ways to make your customers feel like owners, they’ll likely be willing to pay more for your product or service in the long run.

Until next time, happy selling!



Wanna really get inside your buyer’s head?

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Written By Katelyn

Katelyn Bourgoin is the CEO of Customer Camp, a 4X founder, and a cheese lover. She lives by a simple mantra: whoever gets closer to the customer wins.

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