Psychology in marketing: The Endowment Effect

What is the Endowment Effect?

Simply put, it is the idea that people value things more if they feel they have taken ownership of them. In marketing terms, there are lots of popular ways to use this effect to our advantage. Things like free trials, sample products, money off vouchers. These give consumers a feeling of ownership and they are then less likely to want to give that up. It encourages a sense of loyalty in a way. 

If someone takes a free trial of a product or service, they will be very inclined to continue with it at the end of the trial - even if that means paying for it. They have taken ownership of their account and people also generally like things to stay the same - “if it works, why change it?” Offering these promotions focuses on marketing psychology. In fact, the endowment effect often sees people paying more for something that they have an attachment too, even if the attachment is recent. For example, buying a painting that has cost a lot but then finding another one that is just as nice for less money. You are more likely to keep the original despite the higher cost, because it’s now ‘yours’, you have claimed ownership.

The endowment effect is linked closely with status quo bias - keeping things the same and avoiding change because they work as you want them to and because you have taken ownership of them.

You can read our other “Psychology in marketing” articles here:

Zero Risk Bias

Confirmation Bias

The Bandwagon Effect

The Endowment Effect

In-group Favouritism

Not Invented Here