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Self-promotion is one of the most popular activities in modern marketing. Many businesses believe that, with the right promotion, they can boost their sales, clear their stock, and quickly generate a good, steady cash flow. And the good news is, their beliefs are totally founded.
However, with more and more businesses joining the promotion game, consumers are becoming increasingly immune to how marketers communicate. Promotions at supermarkets, ‘higher prices’ paired with crazy discounts in bargain warehouses — all contribute to the consumers' increasing immunity regarding advertising messaging.
Under these unfavourable circumstances, making your promotion truly effective becomes a requirement for businesses. Not standing out or repeating what the person next in line said will ensure only that you become part of the ‘white noise’ of marketing, another promise that rings falsely in the ears of consumers. To stand out from the crowd, one must understand the first principle behind self-promotion, a principle which lies in basic consumer psychology.
How we all think.
The secret to promotion and promotion immunity stems from the principle of loss aversion. The greater the loss, the less likely we are to partake in purchasing something.
Imagine playing head or tail with an even-textured coin. In this game, you win $120 with heads and lose $100 with tails. Are you keen to play at these odds?
If you're familiar with probability theory, you’ll know there’s an equal chance of getting either heads or tails. So you're likely to win more money if you keep playing the game, as the rewards outweigh the losses.
However, most people won’t play this game, not because they're cautious or deliberate, but because they’re loss averse and the reward doesn’t seem great enough. People tend to avoid losses because losing $100 feels worse than the happiness of winning $120.
Now, what if you win $200 with heads and lose $100 with tails? Would you play the game, then? What about if we raise the reward to $250?
If you think deeply about your hesitation and impulse when you raise the reward, it's not hard to notice that we all have this sort of loss aversion wherever there’s a low threshold reward. The impulse for risk increases as the reward is raised but never truly disappears.
The truth is people tend to take risks when the rewards are up to 200% to 250%, after which the higher reward outweighs the initial aversion.
Loss aversion in the real world.
We see this aversion to loss in action when people try to make smart money decisions, especially around investments. It almost doesn't matter what change we need to make; we hesitate to change from the current situation because it means having an opinion and making a decision. With a decision comes the very real possibility that we'll make the wrong one. Sticking with the status quo feels much better, even if we know it's costing us money.
Within the marketing context, this particle of human truth illustrates the first principle regarding promotion for market penetration and brand switching.
Trying new products is always a gamble for customers, especially when they're already used to something in their daily routine. You’re driving your customer out of their comfort zone with the risk of disrupting their present routine and potentially wasting their money. They might have gone through all of this a dozen times with other promotions and found no better alternative.
Is risk aversion always related to money?
Not always. Risk aversion can be related to time, effort or value dependent, particularly if the product or service in question gives them status appeal.
Let's break down the heads and tails of any particular purchase.
Firstly, customers need to face the possibility that they purchased a product that doesn't suit them, which is not only a waste of their time but also a waste of their money.
Secondly, customers should prepare themselves for the likelihood that this new product will make little difference compared to the one they're currently using, which may lead to homogeneous issues and a price war with other competing products.
Thirdly, customers might discover that this new product is an absolute superstar that offers them more value than the product they're currently using. This is the win-win products or services like to advertise, and consumers believe, but which marketing oversaturation has made difficult. Promoting this difference takes a new strategy, one that highlights the benefits and overcomes loss aversion.
And so each of these circumstances requires a different set of marketing actions instead of solely relying on promotion techniques we’ve all become accustomed to tuning out.
Techniques such as what?
First, businesses should consider renovating their STP (Segmentation, Targeting and Positioning) for better market opportunities, finding those people who are most desirous of what they have to offer. Remember, not everyone has the same risk aversion — people’s needs differ. Alternatively, businesses can focus on a significant initial investment to increase their competence within the current market, as long as the promotion makes sense for the target audience.
Secondly, a long-term price war may be necessary to encourage customers to switch to the business's product by promoting over 200% value, such as a significant price difference, to create a new habit of using their product. While this is not unique in of itself, coupled with other tactics, it’s an old classic that works.
Thirdly, businesses should calculate their value triangle and ensure that the value (Physical, Economic, and Psychological) they offer consumers exceeds 200% within their promotion to encourage them to flood into their platform. Again, this depends on the segment they’re targeting, as 200% of psychological value will depend largely on the target audience, their wants and their desires.
Generally, to effectively promote a product or service matrix, businesses must identify which circumstance they are in and take the appropriate marketing actions. But if they can offer the above, with the research/beta testing to back up their assumptions, then it’s likely they’ll distinguish themselves from the rest of the marketing ‘white noise’ enough to capture some real customers.
