The endowment effect is the idea that people believe what they own is worth more than what they would think that same thing is worth if they didn’t own it.
Back in the 1990s, Daniel Kahneman and his associates, Jack Knetsh & Richard Thaler (who just received the Nobel Prize in Economics), wrote “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias.”
They used the following as an example of the endowment effect:
“A wine-loving economist we know purchased some nice Bordeaux wines years ago at low prices. The wines have greatly appreciated in value, so that a bottle that cost only $10 when purchased would now fetch $200 at auction. This economist now drinks some of this wine occasionally, but would neither be willing to sell the wine at the auction price nor buy an additional bottle at that price.”
So how does this play out in marketing supplements in the natural products landscape or direct-to-practitioner?
The real value of paper
Remember the consumer brochure? You know, that glossy item that every supplement company had to have to present their story to everyone? Well, it still lives. Even in this digital age. It lives because it was always there, a part of the marketing family. Ask to define its value, and you invariably will be met with fear of what would happen if it weren’t there.
Well, what would happen? If there was a need for it, you’d hear about it. And what you’d hear would establish its real value. Or you may discover that something else has been covering up for it for years, and that the only value it had was a) status quo, b) someone’s job, or c) I have no idea.
In the retail store environment, where retailers control the collateral, the only value for print is that which can be easily seen. And if your point-of-sale materials draw attention, then their value is easily measured.
In the practitioner channel environment, things are a little less clear. We often hear that print material is still valuable because so many health care professionals (especially those in the older demographic) prefer to receive print brochures, catalogs, etc., and that they are not as comfortable with digital. This is a situation ripe for the endowment effect to entrench itself (and why the resource-intensive printed catalog still lives in abundance).
Does the brochure influence a sale? Do you need to create literature for the practitioner to place in their waiting rooms? And do patients even read product literature when they have their mobile phones in hand?
What we’ve discovered is that taking away — without replacing — is not the way to change habits or status quo bias. It’s all about demonstrating what works better through data.
There are always exceptions
The endowment effect in marketing can take hold faster than you think. Remember direct mail? Many marketers have let this tactic go, and by now everyone has embraced digital communication. Because it’s no longer a part of their marketing arsenal (they don’t “own” it), most marketers are dismissive about direct mail. But we just learned from a friend of ours in the direct marketing business, Neil Kent at Macromark, that millennials love to get postcards, because they’re a surprise. What’s old is new. Response rates are off the charts. And we know that email open and click through rates are not exactly exploding, that they are predictable. So, are you willing to give up some of those email marketing dollars for postcards?
Trading for trade shows
When we published our Natural Products Marketing Benchmark Report in 2015, we wanted to know about the value of a trade show. Rather than asking if they’re worth it or not, we asked about their reasons for exhibiting or attending. We discovered that the top reasons that manufacturers gave for attending a trade show were: #1 interacting with retailers (50%), and meeting distributors and other contacts (50%), #3 brand awareness (45%), and #4 new products/new announcements. We asked the same question of retailers — 88% of them said it was for new products and programs. This data indicates that without new products, it’s going to be hard for manufactures to have meaningful interactions with retailers.
Would those companies consider not going to a trade show if they had no new products to introduce, even if they knew this information? I doubt it. In my many years of working with great companies, one of the hardest things to cut is trade shows. But when they do decide on not going to a specific show, they never (or rarely) go back. They discover that the thousands of dollars they save from not exhibiting can be used for far more “real value” tactics.
The right trade show at the right time is worth every penny. But just because you went the last ten years does not mean that its value has accrued with time.
The real valuation
In the same Natural Products Marketing Benchmark Report, we asked natural products marketers to list the marketing tactics that they utilized, and of those, which tactics had the best ROI. 53% still did demos (the #2 tactic), but in terms of ROI, live demos ranked in the middle. Only 15% did online training, but online training had the highest ROI of all digital tactics.
What this says is that the endowment effect is at work in the natural products industry. The status quo live demo tactic “owned” by most is actually of less worth than online training, which is “owned” by only a few.
The beauty of value is that it can, and should, be measured. In this day and age of analytics, if the marketing tactic can’t be measured, what is its value?
And if you “owned” that tactic for a long time, are you strong enough to trade it in for another that actually has greater proven worth?