Feb 12, 2021
Today we will be digging in on
the endowment effect. This concept is similar to a few you have
heard on the show before, including loss aversion, the IKEA effect
and even a little bit of reciprocity mixed in there. While they are
similar, they are not the same.
The endowment effect is super
impactful for all kinds of businesses. Everything from physical
products to services, online versus brick and mortar shops; all can
use the endowment effect to improve sales. And, yes, this even
comes up when discussing change with members on your team (which I
won’t really get into today, see the Change Management episode link
below for more on that). Listen to this episode and download your
freebie worksheet to get tips for how you can use the endowment
effect in your business.
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- [00:41] In this episode, you’ll
learn what the endowment effect is, how it works, and tips on how
you can use it.
- [02:15] EXCITING NEWS! This
week, an article came out in Psychology Today called
21 Psychology Podcasts Every
Businessperson Should Listen To. I’m so honored to say that The Brainy
Business made the list!
- [03:04] In its simplest form,
the endowment effect teaches us that we value things more when we
own them (or have perceived ownership over them). To put it another
way, we like our stuff more than other peoples’ stuff.
- [03:21] It is incredibly easy
to trigger the endowment effect. Even a slight change in words can
make a huge impact.
- [04:00] By saying, “You will
notice when you go to check out the article…” I am triggering the
endowment effect. Making it personalized by using the word “you”
makes a difference, but also saying, “when you do this thing” is
really powerful for triggering perceived ownership in the brain
(versus “if” you do this thing).
- [05:07] One very simple
language shift that makes a huge difference when applying the
endowment effect is the swap from “if” to “when.”
- [06:08] The endowment effect is
very closely linked to loss aversion, but as I said at the top of
the episode, they are not the same thing. It makes the possibility
of loss more apparent or clear in your mind. It makes it so you are
more aware of losing something.
- [06:47] When you are given
something or interact with it, your brain takes some ownership over
it. It can become a part of your identity as the endowment effect
takes place. You don’t need to have physically purchased it or
technically own it for this to happen.
- [08:07] The first thing you are
given will act like the anchor that you are more likely to take
ownership over and we aren’t the only animals impacted by the
endowment effect. Do monkeys prefer peanut butter or juice? It
- [09:34] Being given the item
first and told it was yours made it so it was worth more to you and
you didn’t want to get rid of it.
- [09:57] If you keep giving
people things, there is no potential loss of the items they have so
the endowment effect doesn’t have much of an outward impact. It is
only when that trade is presented and they need to give something
up that we really see it in action.
- [10:24] Many businesses are set
up so you earn things like credits. They may keep accruing and if
you ever stop paying you will lose them all. That little twinge
will keep you paying often for things you don’t really
- [13:36] Building the endowment
effect into your programs can keep people motivated to stay.
Ideally, you are also providing great value for them when they use
it, but the endowment effect can help carry them through the
valleys where they might be less active because they don’t want to
lose out on the progress they have made so far.
- [14:06] Physical touch has a
big impact on the endowment effect.
- [14:40] Great high-quality
pictures and videos can trigger mirror neurons of someone else
engaging with the product, which can help your business get the
benefit of the endowment effect.
- [14:52] Another way to really
trigger the endowment effect, both for product and service
businesses, is to use the word “imagine” or “picture this.” I also
use really strong questions to help someone see the experience and
live it a little bit.
- [16:24] Getting someone excited
about the prospect of owning something can actually help them to
enjoy it more when they do own it, which is a good
- [17:39] Help the right people
to find the best products and services for them and make it an
irresistible offer. Using the endowment effect can help you do just
that, andl help them truly love you, your business, and that item
after they’ve bought.
- [18:01] Say you hear often from
potential customers that your they’re concerned about the price of
your offer. If you know this is a common concern, it can be
valuable to trigger the endowment effect to help them to see that
as an expense that is worth it to them before they even voice the
- [19:50] One of the main reasons
a money-back guarantee works is because of the endowment effect. If
I know I can try the thing out and get a refund down the line no
questions asked, I’m more likely to try it (and less likely to
return it because of the endowment effect).
- [21:15] Melina summarizes her
tips about the endowment effect - download your worksheet to
- [23:32] I’m excited to announce
that my first book, What
Your Customer Wants (And Can’t Tell You) is officially on presale and available on
Amazon and Barnes and Noble (links below) so you can buy today! The
book officially launches on May 11, but buying now guarantees
you’ll be one of the first to receive this book in print when it’s
- [24:25] And, if you are
interested in being part of my launch team to help promote the book
(and maybe get a sneak peek!) send an email to melina (at)
thebrainybusiness (dot) com. There will be a limited number of
these spots available, so act fast if you’re
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