How to use Endowment Effect to make more money

The Endowment Effect is a psychological effect when a person overvalues an object or service because they own them.


They tend to develop an emotional attachment to the item and are not willing to give it up even when all rational decisions would say otherwise.


Example: An individual purchases a new pair of denim jeans that you loved for 3000 rupees, and someone offered him 3200 rupees.

There is a very big likelihood that he won’t sell those jeans despite the monetary gain.


Similar reactions due to the endowment effect can influence collectors, investors, and even traders.


How can you use Endowment Effect in Business?

This effect can be used in numerous ways:


1. Trails periods/ subscriptions

Give free trial of the product for some duration before they are charged money.


2. Pay later feature in e-commerce 

Giving a paid version for free initially saying that you can pay later. 


3. Free samples 


4. Haptic Imagery/ augmented reality

By giving a virtual feel of using the product and trying it out a person will get attached to them and that too without much hassle and expenses


5. Long return policy window

This is what eCommerce websites do to keep the returns to the minimum.



Where can you use Endowment Effect in Business?

This effect can be seen coming into play with a lot of things like:


1. SAAS Platforms and Other software: 

Giving a good long trial period would make people feel attached to the software. The more they use, the more attached they’ll get, and the more they get attached, the more likely they’ll purchase or upgrade from free to a paid plan.


2. Car’s Test Drive

When you do a test drive you get a hands-on experience of the car, and due to touching and feeling the car, we develop some feelings towards it and are more likely to purchase it too.


3. Augmented/ Haptic trial

Lenskart is doing this tremendously well by giving you the experience of trying their frame virtually. By doing this they are saving a lot of time and money for shipping and manufacturing the frames and glasses.

Another example would be of augmented reality of furniture. By this, the individual gets a feeling of trying the furniture at home and also how it will look in their home.


4. Return Policy of Ecommerce sites

How many times have you ordered an item just to try, and even the product was average you decided to keep it. This is where the endowment effect comes into play.


5. Free 1 month trial of OTT platforms

Netflix, Hotstar, Amazon Prime, Youtube premium everyone offers a free one-month trial for this psychological effect as well as the chance of getting addicted to their platform.


6. Free or promotional trial samples of dietary supplements

Promotional samples work the same way when you try their product for some time, there is a very high likely hood that you get attached to their brand and keep buying again and again.

Here another effect called the Reciprocity effect comes into effect too.


7. Pay later:

There was a campaign run by Jay Abraham for a gold shop where they used to sell gold and silver, he used this psychological effect to bump up his sale by over 100%

What they did was, sent a gold coin worth 20USD to their old customers and said that, either they can keep the coin and send $20 or return the coin. 

Surprisingly over 90% of the customers kept the coin and sent the money instead of the coin. Moreover, there were requests to send more coins too.


This is one of many psychological effects that sales and marketing professionals use to gain customers and increase their revenue.


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