What Is the Endowment Effect?

How Does Endowment Effect Apply to Marketing?

Definition:

The endowment effect happens when people value objects simply because they own them. In fact, people tend to pay more to keep something they own than to obtain something new of equal value they do not own.


Endowment Effect Examples:

NCAA Tickets. Professors Dan Ariely and Ziv Carmon ran a study on participants given tickets to the NCAA final four tournament tickets. The amount they were willing to sell their tickets for was 14 times than their buying price.


Rent-to-Own, $1 Trials, and Free + Shipping. Are you confident in your product? So much so, that when someone buys it, you know many buyers will become a customer for life? Sometimes, all it takes is to lower the initial cost. Here are three common business models to turn passive readers into buyers.


Rent-to-Own. In the 1950’s, there was a new model for buying a home. Buyers would rent a home for a set amount of time. Anytime during their lease, they could choose to purchase the house instead of renting. Since then, other businesses have chosen to adopt this model for higher priced products.


$1 Trial Many SaaS businesses offer a free trial.

This gets a lot of people to try the product and buy it. But it also increases the number of people who start a free trial, but never buy the product. These tirekickers can tangle up several hours of support time, for no return on investment. To minimize the number of tire kickers, you can charge a $1 trial.


Free + Shipping. Smart business owners know repeat customers are more profitable than new customers. Here’s a simple way to leverage the endowment effect and the power of customer loyalty, together.

Instead of charging for a product, why not offer it for free? As crazy as this sounds, this is one of the simplest ways to get someone to become a buyer. Additionally, you can also create a sales funnel to offer a higher-priced item. This allows you to instantly create profit for your business.

See Also: Ikea Effect, Prospect Theory, Endowed Progress Effect

Jason Quey

I am the CEO and Founder of Growth Ramp. I enjoy helping high-growth startups on their journey from idea to scale.

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