Chances are you’ve got a few subscriptions on the go. Definitely a phone, probably a streaming service and maybe even a food delivery box.
Chances are you’ve questioned the value of one of these when your circumstances changed.
Chances are when you’ve come to cancel, in the moment you’ve had second thoughts.
This was the situation I found myself in. Our household had two TV subscriptions we weren’t really using one of them. I was adamant that I was going to cancel. I sat down to get on with it.
Login details? Check. Account screen? Found. Review membership: clicked through. Cancel membership! But they had got in there first.
‘Simon, you’re only half way through that box-set. How about a special offer, just for you? Get a monthly discount: £5 per month for 6 months (normally £9.99).’
My mind flashed to cosy evenings on the sofa contemplating Tony Soprano’s many troubles.
‘Sure, we’d not watched it in a while, but what would my wife say if it disappeared from the TV menu? Half price is pretty good, after all…’
Before I know it I’ve clicked on the offer and I’m signed up.
Lots of decisions in life are like this. What you expected to be clear and obvious can end up fuzzy and ambiguous in the moment. When faced with making a decision it’s often easier to put it off: keeping your options open is tempting.
In my case the pre-allocated offer meant I’d be losing out if I left. It made me question my decision to cancel – I’d no longer have the TV content, and I’d have missed out on having it half price.
That feeling of loss is uncomfortable. Nobel Prize winners Kahneman and Tversky showed how people avoid it at all costs: it’s a real motivator for our behaviour. Through a series of clever experiments they proved the pain of losing is twice as powerful as the pleasure of gaining. What’s more, this “loss aversion” is a stable, observable pattern in human behaviour – a cognitive bias. We feel it so strongly because of its evolutionary origins, passed down to us by our ancestors preoccupied with collecting enough food to survive the winter.
What impact does it have on customer retention?
Once you notice one brand using loss aversion as a retention strategy, you start noticing it everywhere. But does it make a measurable difference?
To answer this question, my colleagues at Trinity McQueen and I undertook a controlled experiment. Using two independent nationally representative samples of 1000 UK adults. Each saw a different message designed for customers at the end of their phone contract. We asked a simple question:
Imagine your smartphone contract is coming to an end this month. Your network provider sends you a letter asking you to sign up for another 12 months at the same price, with the offer shown adjacent.
The messages had an identical benefit (an extra 5GB of data): one was expressed as a pre-allocated gain which people would forgo if they didn’t renew (“We have already credited your account”), the other as a traditional formulation (“If you sign up you will receive”).
What we found
- People are more likely to stay when they the benefit is framed around a pre-allocated gain
- This magnitude of the increase was significant: there was a 10 percentage point uplift
Losses carry an emotional sting: they tap into our pre-programmed instincts. We are driven to avoid them wherever possible.
Applying these learnings
Spend some time with customers understanding the value they are not ready to give up
Frame your retention offers with care: try brainstorming a long list of messages then test your shortlist – either in research (monadically) or in a live environment (A/B test)
When the time is right remind customers what they value most.