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Innovation Insights by Stephen Shapiro

In an earlier blog entry, I discuss the power of language. I want to explore this a bit further today.

Here’s my variation of the “Asian disease problem” mentioned in that earlier blog entry:

Which would you prefer?

  • OPTION 1: A guaranteed gain of $75,000?
  • OPTION 2: An 80% chance of gaining $100,000 with a 20% chance of getting nothing?

When I give a speech and ask the audience this question, 75% choose Option 1. This percentage is consistent across all groups, regardless of who is in the audience.

Ok, what about the following? Which would you choose?

  • Option 3: A certain loss of $75,000?
  • Option 4: An 80% chance of losing $100,000 with a 20% chance of not losing anything?

When audiences answer this one, 99% choose option 4.

This once again supports the premise that people will take risks to reduce losses, yet will be more risk averse when it comes to increasing gains.

Interestingly, when you look at these options, even though most people choose options 1 and 4, options 2 and 3 give you better returns. On average, you will gain $80,000 with option 2 and will lose $80,000 with option 4.

Look around and you may begin to see examples of advertisers focusing on losses rather than gains, with stellar results. For example…

How many mattress commercials have you heard that say, “Buy our xyz bed and you will get your best night’s sleep ever.” Yawn. Boring. The commercial may put me to sleep, but it’s not going to get me to buy a bed.

Consider this actual advertisement. “If your mattress is 10 years old, it weighs twice its original weight due to the dust mites that accumulate over the years.” Ouch! This makes me want to replace my mattress now.

Instead of selling customers on how great your product or service is, show them the downside of using a less reliable alternative. As a friend of mine says, “If you need open heart surgery, would you shop for a cardiologist based on price?” She then launches into the risk associated with not getting it (your product/service) right.

What examples have you seen of great sales pitches, advertisements, or anything else that uses this concept?

P.S. One place where this concept apparently does not apply is on TV game shows. I see people on “Deal or No Deal” risk a certain $500,000 for a 50% chance of winning $1 million. Their interviewing process must do a great job at finding the few people who really do take risks to increase their gains.

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