A well-endowed ploy

 2 minute read

Have you ever wondered why so many companies are getting on to the ‘Free Trial’ bandwagon? With Netflix pioneering this, a bunch of online and offline companies are offering a free look-in period to their customers. You may debate the merits of this offer, but some researchers have identified a psychological twitch that these companies may be exploiting to acquire and hook customers.

Psychologists have long been aware of the “endowment effect”, which essentially states that people value objects a lot more when they “own” them compared to when they don’t. Which is why there is often such a large disparity during the sales negotiation process. A group of researchers tried to study this effect in a classroom of students.

The researchers informed a group of students that they would be taking part in a study which would require them to answer a few questions and in return, they would be rewarded with a coffee mug. Sounds simple so far. They divided the students into two groups – the possession group and the inspection group. After the students answered the questions, two identical coffee mugs were placed in front of them, and they were asked to pick one up. This is where things got interesting. The possession group was told that they now own the mug while the inspection group was given no such offer. Both the groups were subsequently asked to place the mug back on the table and then asked whether they would like to take/exchange for the mug next to the one they had just picked up.

Now in theory, given that the mugs were identical, the students should be indifferent to the mugs – and there should have been a 50% chance that the students would select the mug they did not pick up to take home.

This was the case in the inspection group, where nearly 60% of the students opted to select the “other mug”, however a strange phenomenon was observed in the possession group. Only 15% of the students opted to select the “other mug” while 85% of the students chose to retain the mug which they were told they owned (the first one they had picked up).

This is a clear example of the endowment effect at play, where once a person gets the feeling of ownership, they are much more likely to not let go of the object or the service. A lot of subscription services are taking advantage of the phenomenon and relying on the fact that once customers get a sense of ownership (for free in this case), they are much more likely to pay for the subscription so they don’t lose the sense of ownership as compared to someone who is asked to pay for the service from month one.

So next time you sign up for a free trial, beware of this phenomenon at play.

Original research by Christoph Koglera, Anton Kühbergerbc and Rainer Gilhoferb

https://www.sciencedirect.com/science/article/pii/S016748701300055X