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What’s the endowment effect and how can it boost your profits?

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What’s the endowment effect? And how can you use it in your business to increase your profitability? 

Everyone wants more profit right?

Ok, maybe not all businesses are for profit but even if they’re not you still need profits to keep your business running, right? 

So if you could increase your profit using a simple psychological principle without hurting your customers or employees, would you do it?

Yes!

Well great, we’re on the same page now let’s get into it! 

What is the endowment effect? 

Well, it’s not the benefit you get from taking viagra, cialis or horny goat weed… 

Sorry Mark…

The endowment effect refers to an emotional bias where humans value what they have and own more than they would otherwise.

So why is that important to your business? 

Well that’s a great question. 

Imagine you started a free 7-day trial for Disney+ to see what the new Mandolorian series was about… 

And all you have to do is put in your credit card information but it doesn’t charge your credit card. 

Let’s say you were interested in watching the series for a month now but didn’t see the value in paying $7.99 to start the membership. 

However you saw a promo that allowed you to get a free trial. 

So you figure that you can watch the whole series in 7 days since you’re on vacation and there isn’t much to do during the pandemic. 

I get it… 

You were thinking get in for free and get out before they hit you with the fee. 

Great plan only thing is that on day 7 you didn’t cancel and chose to keep your subscription. 

You managed to binge Mandalorian and scarfed down the whole season in 5 days so why didn’t you stick to the plan? 

The answer lies in the endowment effect. 

Now that you own a subscription and you value the service you don’t want to give it up and you think it’s worth more than you did before you started your free trial. 

What you failed to compensate for when you started your free trial is the impact of loss aversion. Which states people are more likely to keep something out of the fear of losing it. Plus the endowment effect that states you value an object more once you own it. 

Both of these human biases overwhelm your rational brain and cause you to keep a subscription you don’t need but now want.

That’s the power of the endowment effect! 

How can you apply this to your daily life or business? 

Give something of value to your prospects or customers for little or no upfront cost for a limited amount of time. Then after that time is up, raise the price or take away features of that product or service unless they pay the membership fee. 

It’s likely that the prospect will be willing to pay for this product or service if they enjoyed it and derived value. 

Even if they couldn’t imagine how it could improve their life before, they now know its worth and it may be uncomfortable for them to part with that comfort or utility it created. 

This can help you increase the lifetime value of current clients or help you widen your funnel by getting people that would have been hesitant to try your product at first. 

Which means you’ll be able to get more customers or increase the amount of money they spend with you. 

Crazy, right? 

And the coolest thing is your prospects and customers will feel like your product is more valuable than it was before and may not mind paying for what they once would have written off. 

So now that you know what the endowment is and how you could use it to increase your profits it’s time to apply what you learned. 

“Knowing is not enough to cause change in your life. If you want to see change you must take action!”  

So what are you waiting for? 

Start now and let me know how it goes. 

Till next time M8! 

~J 

P.S. If you want to discover more marketing strategies that can help boost your sales or improve your funnel schedule a 15 min call with me today

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John Mullinix

John Mullinix

I'm a father and Digital Marketing Fanatic. I enjoy helping brands grow and reach their sales goals by using copywriting, data driven marketing & conversion architecture.

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