Ask Me Anything: Loss Aversion
ASK ME ANYTHING QUESTION
What is loss aversion and how can it relate to the arts?
STEVEN ROTH’S ANSWER
Loss aversion is defined as people’s tendency to prefer avoiding losses to acquiring equivalent gain (i.e., it is better to not lose $5 than to find $5).
A blog post from Psychology Today dated 3/8/18 provides more insight: “Why are we so afraid of losing? Our aversion to loss is a strong emotion. The aversive response reflects the critical role of negative emotions (anxiety and fear) to losses (Rick, 2011). In other words, loss aversion is an expression of fear. This explains why we tend to focus on the negative events (a setback) than the positive ones (making progress). Negative emotions (receiving criticism) have a stronger impact than good ones (receiving praise). As Charles Darwin once said, ‘Everyone feels blame more acutely than praise.’”
A few years ago the University Musical Society in Ann Arbor, Michigan conducted an experiment in loss aversion.* They mailed time-limited offers to similar lapsed ticket buyer segments:
- A promo code that offered a $20 discount per ticket
- A coupon for “UMS Cash” valued @ $20 per ticket
- Control group with no offer, but otherwise the same content
The hypothesis was that the group with the coupon would view it as “cash” and the discount offer group would treat it as “found money.” The results proved the hypothesis to be correct. The control group brought in a 1.1% response rate and $1,905 in sales. The discount offer (found money) brought in a 1.9% response rate, worth $4,000 in sales. The “UMS Cash” offer had a 3.2% response and garnered $5,400. Their response rate was 70% higher than the discount offer group, with 35% more revenue. The lesson? Those who received the coupon were more loss averse—they did not want to waste the “cash” that had been offered and were significantly more likely to respond.
The loss aversion lesson: When arts marketers are faced with deciding on how to motivate patrons, how offers are positioned can make a big difference in the results. If a patron receives something that feels like a cash gift, s/he may be more likely to redeem it than a promo code or discount coupon.
*Credit for the UMS experiment, and appreciation for letting us share the results, goes to Sara Billmann, Director of Marketing & Communications, University Musical Society, University of Michigan
JCA Arts Marketing collaborates with cultural organizations to increase revenue, boost attendance and membership, and grow patron loyalty. We provide consulting and software services to hundreds of cultural institutions across multiple genres, including dance, museums, opera, performing arts centers, symphony, and theatre. We can help you achieve your marketing goals.