If you’ve ever subscribed to a gym membership, you’re no doubt familiar with the effect of sunk costs. In short, it’s something you experience every time you grumble or sigh on your way to the gym: you’re reluctant to give up an activity in which you’ve already invested a lot of your time, money or energy.
The sunk cost effect: a reality
The sunk cost effect is clearly a very real phenomenon, as you’ve already experienced. Studies suggest that this phenomenon occurs in many fields other than sports. One of these studies is based on a fictitious scenario, that of ski passes. Participants were asked to imagine that they had mistakenly booked ski passes for two different excursions, even though they could only do one. The first is the more expensive and looks to be the less exciting. The second is cheaper but guarantees a good time. Most participants chose to take part in the first excursion, preferring boredom to good times, in order to waste as little money as possible. Why this behavior? The cause is none other than the sunk cost effect. With the right marketing strategy, you and all other e-commerce players can take advantage of this phenomenon.
Subscription-based services
The effect of sunk costs explains the current popularity of SaaS-type subscription services. Most of them offer the customer the chance to save money by committing to several months and paying in advance. As soon as the product or service is purchased, subscribers realize that they need to find a way to make the most of it, because the subscription has generated sunk costs. They’ll be all the more likely to sing the praises of their purchase if they’ve spent a substantial sum to obtain it. Whether on social media, on their blog or in person, you can be sure that buyers will be looking to justify their expenditure.
Brand benefits
Since people are willing to spend more money to buy the products or services of a brand they value, you can take advantage of the sunk cost effect. If consumers pay full price for the products they want, they will be convinced that these products are of higher quality than the cheap ones.
Supporting the move upmarket
After making a substantial expenditure, your customers may be more easily persuaded to increase it later. For example, if they buy a laptop, they’re more likely to agree to pay for top-of-the-range antivirus software to protect their investment. If they buy a plane ticket, they won’t be reluctant to spend more to get more legroom, or even a business-class ticket.
