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Loss aversion also commonly known as the ‘prospect theory’ is thepsychological theory that we would rather avoid the enduring pain of a loss than the pleasure of a win.

In theory, it is favouring not wanting to lose something over actually winning something. There are so many common day-to-day examples of this theory, personal possessions being one of them. Not wanting to let something go because of the fear of ‘losing’ it rather than it having any sort of gain.

So how can loss aversion affect customer behaviour online?

Well think about it like this, if customers could see with their own eyes the possibility of what could be lost, they’re more likely to be persuaded into converting.

What do I mean by this?

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If customers can visually see how much of an item is available, they would acknowledge that it is in short supply. This then corresponds with the idea of not wanting to lose out.

The example above by retailer Topman is a great example of how this sort of psychologicallycan be implemented on a product-landing page.

Although this may seem like a form of supply and demand, due to the shortage of the item and its sizes that are available, it is actually a very clever use of the loss aversion technique.

We believe Topman have executed this technique very well, for instance giving users the ability to see what other sizes were available but no longer are in grey shows the popularity of this item.

This is then further boosted by the use of the strapline ‘Hurry only 2 left in stock’ which appears to give the user an accurate real-time indication of how much can be gained or more importantly how much can be ‘lost’ if they do not choose to buy it now.

For ecommerce retailers in particular, playing on this prospect of short supply will really help to boost customer urgency and get them to think, although there is something to be won, the win would be short-term but the pain of losing out could be long-term which makes customers not want to lose out.

This form of loss aversion also relates to Email marketing and re-marketing. Common examples are when the items are in shortage of supply or flash sales are in operation.

How these tactics work is they lure customers who already have an interest in products and assert anxiety within them in order to give them a quick Call-to-Action (CTA).

All of which occurs simultaneously without the customer even thinking about it. This forces them into a quick decision of whether to buy or not to buy and what consequences could be faced if they choose not to.

Are you currently using any loss aversion techniques at the moment? What can be learnt from loss aversions? We’d love to hear your thought!