What is Loss Aversion?
Loss aversion is the psychological response that humans have when it comes to avoiding losing out on something. Whether it’s a sale, a game, or an argument, people don’t want to lose. For many people, trying to avoid a loss is often more important than focusing on how to win.
Simply put, loss aversion refers to FOMO.
How Does Loss Aversion Impact Sales?
Sales teams deal with loss aversion on multiple fronts: sales reps may feel stressed about missing out on potential sales, and potential customers may feel like they’re going to miss out on an amazing opportunity.
One of these scenarios can be beneficial, but the other may hinder performance. It’s important to know how to deal with both situations.
Loss Aversion and Sales Reps
A sales rep, especially someone new to the field, may feel the weight of loss aversion if they are in the final stages of negotiating a sale. They know how much revenue will be made once the deal is closed and don’t want to lose the customer. This stress is normal, but it can’t get out of hand.
Some sales reps may feel pressure to speed up a sale. This can lead to risky decision-making and going off the book regarding the proper process. Ensuring all sales reps are properly trained and understanding the value of following due diligence is vital.
If a team member is worried about a sale falling through, ensure they have the proper resources to deal with the situation, regroup, and get back on track.
Loss Aversion and Potential Customers
When potential customers feel the effects of loss aversion, it can work in your favor. They may have seen positive testimonials of your product online or gotten a referral from a colleague. Either way, they’re interested in your product and don’t want to miss the opportunity to use it.
In these scenarios, you can use their emotional response to your advantage to close out a sale.
Using Loss Aversion to Your Advantage
When selling products to your prospects, you can use different techniques that use loss aversion to help boost sales. Remember, people often focus more on savings than potential gains, so use that to your advantage when welling.
- Offer Discounts. Market your product at a discounted rate and let prospects know how much they can save when they make a purchase. Limited deals also help create a sense of urgency, which propels sales even more.
- Provide a Free Trial Period. Why wait to test a product when you can sign up now for a free trial? Once they’re hooked, reel them in with discounts if they make a purchase within a specific timeframe. And remember, the better their experience is during the trial period, the more likely they’ll be to purchase the product.
- Use Referral Programs. Referral programs are a great way to get more prospects flowing through your sales pipeline. If an existing customer refers someone to you, offer them a discount or exclusive benefit. This will help motivate them to talk about your product to others; it’s a win-win for you both.
- Processing Renewals. If you’re focused on customer retention, you can offer special promotions or discounts to keep them interested in your product. Tell them what they’d miss out on if they canceled their subscription or moved to a competitor.
- Align Sales and Marketing. When using loss aversion to your advantage, ensure both sales and marketing teams are aligned. Whatever is being advertised should match what’s offered in sales pitches and vice versa.