A regular review of interesting cultural shifts & marketing developments as viewed through the collective lens of the Stancombe Research + Planning Team

Wednesday, March 2, 2011

Does the status-quo bias explain our apathy when it comes to switching services?

Think about it...how many times have you switched your...
  • Bank
  • Accountant
  • Telco provider
  • Electricity company
  • Dentist
  • Doctor
  • Lawyer
  • Health insurer
Why is it that we become so rusted on when comes to these types of services providers? Behavioural economists would suggest it's the status-quo bias principle at play. Status-quo bias occurs when "the properties of alternative options are evaluated as advantages or disadvantages relative to the current situation, and the disadvantages of the alternatives loom larger than their advantages" (Kahneman 2003, Maps of Bounded Rationality: Psychology for Behavioural Economics)

There are two reasons why the disadvantages of switching appear to loom larger than the advantages:
  • Loss aversion (we focus on the negatives): Behavioral economists have established that we feel the pain of losses more than we enjoy the pleasure of gains. So when we think about change we focus more on what we might lose rather than on what we might get. Even people who aren’t all that happy with their current provider, then, are still likely to feel anxious about whatever will replace it. (source: www.newyorker.com) We have found this especially true when it comes to services people don't really understand or perceive to be complicated like mobile phone plans or home loans
'Better the devil you know than the devil you don't'
  • Endowment effects (we overvalue things we own): A simple demonstration of this was an experiment (conducted by Kahneman, Knetsch and Thaler, 1990) in which some students in a class were given coffee mugs emblazoned with their school’s logo and asked how much they would demand to sell them, while others in the class were asked how much they would pay to buy them. Instead of valuing the mugs similarly, the new owners of the mugs demanded more than twice as much as the buyers were willing to pay. (source: www.newyorker.com) How many times have you heard, 'My chiropractor is really good, you should see her' or 'I've got a really great mechanic' etc. People will often over value the benefits they are receiving from their service provider. For example in the telco space, we have found people paying almost 3 times more than they need to because they have not switched their mobile plan in 10 years, because they still think they are on a good deal!

Basically it's always going to be an up hill battle to get people to switch from their current service provider, because you will be fighting our fundamental human nature to resist change.

Therefore, often brand strategies need to be developed to help give momentum to tactical initiatives that might have the potential to break through the status-quo barrier. Here are just some thought starters...
  • Reduce the perceived risk of switching by building a friendly/customer-centric/credible brand image and then offering 6 months free subscription
  • Give people reasons to doubt the value they are currently getting by position your brand as the 'challenger' and then offer something that none of the competition would dare to

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