Sunk cost bias refers to the tendency for individuals to continue investing in a decision or project because they have already invested resources into it, even if the decision or project no longer makes sense.
1. The Loyalty Card Effect
The Loyalty Card Effect is a marketing strategy that uses loyalty cards or reward programs to leverage the sunk cost bias and encourage customer loyalty. By offering rewards or discounts for repeat business, it creates an incentive for customers to stay invested in the brand or business, as they don’t want their investment to go to waste. This can increase customer loyalty, repeat business and drive sales.
Example: A coffee shop gives a loyalty card that gets stamped for every purchase. Once the card is filled, the customer gets a free coffee. This encourages customers to continue buying coffee from the shop in order to get the free coffee.
2. The Commitment and Consistency Principle
Leveraging the commitment and consistency principle can encourage customers to continue using a product or service by getting them to make small initial commitments, and then gradually increasing the investment.
Example: A gym offers a free trial week, then a discounted rate for signing up for a month, and then the regular rate for a year-long contract. This encourages customers to make a small initial commitment and then gradually increase their investment in the gym.
3. The Upgrade Offer
Offering an upgrade to customers who have already invested in a product or service can leverage sunk cost bias by making customers feel like they’re getting something of value in return for what they’ve already invested in.
Example: A customer has purchased a basic software program, and the company offers them the opportunity to upgrade to a more advanced version with additional features at a discounted rate.
4. The Cross-selling Technique
Leverage the cross-selling technique by offering customers related products or services that complement their initial investment.
Example: An e-commerce website could recommend similar products to customers who have just made a purchase, increasing the chances of additional sales.
5. The Repeat Purchase Technique
Encourage customers to make repeat purchases by reminding them of their past investments and the value they received from them.
Example: A subscription-based service could send out periodic emails to subscribers highlighting the benefits of the service and how it adds value to their life.
6. The Early Adopter Technique
Use the early adopter technique by offering exclusive discounts or bonuses to customers who invest early in a product or service.
Example: A startup company could offer early adopters a discounted rate for their services, highlighting the added value of being an early investor in the company.
7. The Exclusive Access Technique
Use the exclusive access technique by offering customers exclusive access to members-only events, promotions, or content.
Example: A concert venue could offer VIP members exclusive access to meet and greet events with the performers, highlighting the added value of the membership.
8. The Renewal Discount
Offering a renewal discount can leverage sunk cost bias by making customers feel like they’re getting something of value in return for their continued investment.
Example: A customer has a subscription to a magazine, and the company offers them a discounted rate for renewing their subscription for another year.
9. The Add-On Service Technique
Use the add-on service technique by offering customers additional services that complement their initial investment.
Example: A car rental company could offer a GPS navigation service as an add-on, highlighting the added value of the service and making the rental more valuable to the customer.
10. The Trade-Up Technique
Use the trade-up technique by offering customers the opportunity to trade-in their initial investment for a new and improved product or service.
Example: An electronics store could offer a trade-in program for customers to trade in their old smartphones for a discounted price on a new model, highlighting the added value of the new model.
11. The Progress Rewards Technique
Leverage the progress rewards technique by offering customers rewards or bonuses for reaching certain milestones or making progress in a product or service.
Example: A language learning app could offer rewards like virtual badges or discounts on additional courses for reaching a certain level of proficiency, highlighting the added value of the rewards and encouraging continued use.
Sunk cost bias is similar to several other cognitive biases, such as:
Loss Aversion: This bias refers to the tendency for individuals to strongly prefer avoiding losses to acquiring equivalent gains. This bias is similar to sunk cost bias in that individuals may continue investing in a decision or project in order to avoid the feeling of loss associated with giving up on it.
Endowment Effect: This bias refers to the tendency for individuals to value something more highly simply because they own it. This bias is similar to sunk cost bias in that individuals may continue investing in a decision or project because they have already invested resources into it, and therefore value it more highly.
Escalation of Commitment: This bias refers to the tendency for individuals to continue investing in a decision or project even when it is no longer rational to do so. This bias is similar to sunk cost bias in that individuals may continue investing in a decision or project because they have already invested resources into it and don’t want to admit that it was a bad decision.
Citations
“The Sunk Cost Fallacy: How to Make Better Business Decisions” by Harvard Business Review, https://hbr.org/2019/02/the-sunk-cost-fallacy-how-to-make-better-business-decisions
“Sunk Costs and the Persistence of Religion” by Journal of Economic Behavior & Organization, https://www.sciencedirect.com/science/article/pii/S0167268113001357
“Sunk Cost Fallacy in Marketing: How to Overcome It” by Marketing91, https://www.marketing91.com/sunk-cost-fallacy-marketing/
“The Sunk Cost Fallacy: Why We Sometimes Make Irrational Decisions” by Forbes, https://www.forbes.com/sites/forbesbusinesscouncil/2019/02/27/the-sunk-cost-fallacy-why-we-sometimes-make-irrational-decisions/?sh=6c9a9e1d2c12
“The sunk cost bias and its influence on advertising effectiveness” by Journal of Business Research, https://www.sciencedirect.com/science/article/pii/S0148296306000716
“Sunk Cost Fallacy in Marketing: How to Overcome It” by Entrepreneur, https://www.entrepreneur.com/article/353774
