For a long time, marketers have assumed that when consumers fail to gamble on a new product or service in place of their regular one, it’s because of their fears of loss. However, research from the Kellogg School of Management at Northwestern University finds this may not be the whole story.
The recent Kellogg Insight article “Should I Stay or Should I Go” details the research of Kellogg marketing professor Alexander Chernev, in which he asked people if they would consider investing in funds with higher yield potential than the funds they already owned. He categorized respondents as prevention-focused, those who more often stayed with the status quo, and promotion focused, those who would try something new if it seemed profitable.
With the prevention-focused group, Chernev found that their reluctance to try new products couldn’t be solely attributed to simple loss aversion; if that were the case, then they would have chosen the higher-yield investment.
Chernev proposed that instead, these choices were based on regret-aversion strategies. Previous research has indicated that people tend to put more blame on actions that produced poor outcomes than inactions producing poor results.
This suggests that how options are framed has a lot to do with what risks consumers are willing to take. In another experiment, Chernev did not give consumers the option of sticking with their old funds, but made them choose from two new funds. If both funds were framed as a gain, all but 10.6 percent of the prevention-focused consumers chose a new fund.
However, if both choices were expected to make less than the old fund, then 21.3 percent of the prevention-focused group declined to make a choice — even though one of the new funds showed a higher rate of return than the other.
The takeaway from this? While nobody likes losing money, it’s even worse for prevention-focused consumers to feel as if the loss is a result of their own poor choices. Also, it’s probably safe to assume that most of the consumers contributing to Las Vegas’ tourism dollars are promotion-focused.
Roulette image courtesy of Flickr user Phil Romans, CC 2.0.
