Endowment effect

🤔 Did you know…

People tend to overestimate the value of the things they own.

Smart marketers can reverse engineer this simple idea and as much as x2 the perceived value of their product.

Keep reading if you want to know how…

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You’re selling your car.

It’s been 12 years of the old trusty (or rusty) but you know it’s got to go.

It makes that funny noise when you drive, you’ve had to take it to the repair shop 3 times in the last month and your dad is adamant you’re driving a death trap.

You love this thing. It’s seen you through college, and that long road trip across the country where you laughed until you cried.

But you know, it’s probably time to give it up so you go to the local car garage.

The guy sits you down and hits you with his ‘best’ price:


WHAT! Furious you storm out. This guy is clearly trying to scam you. Old trusty might be a little warn out but $500 is just insulting.

In a rage, you punch your keyboard keys to find the real value.

Google comes back: $500.

You shake your head in disbelief.

Why do you still think your car should be worth much more than that?

In today’s edition of Why We Buy 🧠, we’ll explore the Endowment effect —why we overvalue things we own.

Let’s get into it.

The Psychology of the Endowment Effect 🧠

Have you ever noticed that you value something more because it’s yours?

That vintage guitar gathering dust in the corner or that old family heirloom passed down to you from your grandma’s, grandma’s, grandma — these items hold an unexplainable value.

Something it’s hard to put a price on.

Behavioural expert and founding father of behavioural science, Daniel Kahneman and his research team found that people tend to value items higher if they own them.

Undergraduates at Cornell University were given a mug and the opportunity to trade the mug for an item of equal value. In theory, roughly half the mugs would have been traded if ownership had zero impact on valuing an item.

Once the students had been given the mug the amount they’d accept to give up the mug had doubled.

It turns out ownership matters. Sometimes it can double the perceived price!

Inside Your Buyer’s Mind🧐

Your buyers value ownership. Think about Starbucks scribbling your name on your cup…

Or your Netflix login screen with your name and icon. What do all these things do? Encourage ownership.

When you encourage buyers to feel ownership of their potential purchase you can increase the perceived value and therefore the likelihood of a purchase.

If you can increase ownership, you can increase conversion.

How To Apply This 🤑

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


Immerse buyers in the product experience

Look out for opportunities where you can give your buyers the experience before they buy. Ask yourself, how can I showcase the experience of my product or service?

A great example is Whoop homepage. The video is an immersive experience.

You are in the shoes of the customer. You open the phone and get the notifications. It’s like you’re there experiencing it. That increases ownership.


Give prospects a free trial run

A trial run is a risk-free way for your buyers to experience your product or service without having to part with their cash. It increases trust and comfort which in turn leads to more sales.

Offering trials is exactly how Amazon Prime gets new customers through its doors month after month.

Embrace delegation
Retail & Hospitality

Create an exclusive member’s club

Loyalty programs work because they make customers feel part of the brand which increases a sense of ownership. This then in turn leads to repeat purchases.

Research from Accenture has shown that 66% of consumers spend more with brands they are loyal to. So increase ownership, increase loyalty, increase spend.

The Costa Club is a perfect example of that.

Service Businesses

Create a personalised service

How do you increase ownership? You allow customers to put their mark on something, whether it’s just their name or the entire product design process…

Take Nike’s personalisation service, by giving creative control to the buyer they increase the perceived value of the shoe.

Embrace delegation

They take it one step further with their “Nike by You” workshops — invite-only events that give creative types a bold new way to tell their stories on a shoe.

Being invited to one of these private events delights customers and deepens brand loyalty.

The Short of It 💥

Wanna increase the perceived value of your product or service?

Help your potential buyer feel like it’s already theirs. Give them ownership, let them make their mark, put your product in their hands.

The result: happier customers who spend more.

Until next time, happy selling.

🐦 Your Brainy Tweetable

How to increase the value of your brand?

Optimise for the endowment effect. Make your buyers feel like your product is already theirs by adding:

  • Free-trials
  • Personalization
  • Loyalty programs

Increase conversions by increasing ownership.

CC: @katebour

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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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