Endowment Effect

Valuing owned items more than their market value.

What it is

It is a psychological bias where individuals value something more when they own it, often leading to irrational decision-making. This can result in people demanding more to give up an object than they would be willing to pay to acquire it.

How to use it

1. Free Trials

One of the most common ways tech startups can use the Endowment Effect to increase conversions is by offering free trials. Once a potential customer has tried a product or service for free, they start to feel a sense of ownership. They begin to value the service more than before using it. They are then more likely to convert and become a paying customer when the trial period ends.

2. Personalized User Experience

Tech startups can use the Endowment Effect to increase user engagement by providing a personalized user experience. The more a user can customize a product to suit their preferences, the stronger their sense of ownership. This increases the perceived value of the product, making them more likely to continue using it and less likely to switch to a competitor's product.

3. User-Generated Content

Encouraging user-generated content is another way to leverage the Endowment Effect. When users generate content – such as reviews, comments, or photos – for a platform, they feel a stronger sense of ownership towards it. This makes them more likely to stay engaged, return to the platform regularly, and convert into paying customers if they were not already.

4. Virtual Goods and Rewards

In a tech startup, especially in gaming apps, giving away virtual goods or rewards can elicit the Endowment Effect. Once users receive these goods or rewards, they perceive them as their own and value them more. This leads to increased engagement, retention, and ultimately, conversions. They may also be more willing to make in-app purchases to improve their gaming experience, thus increasing revenue for the startup.

5. Premium Features

Offering premium features for a limited time can create a sense of ownership and trigger the Endowment Effect. Users get accustomed to the premium features and start valuing them more. When the free access to these features ends, many users will be willing to pay to continue using them. This strategy can significantly boost conversions.

6. Loyalty Programs

Loyalty programs can also be used to increase user retention by leveraging the Endowment Effect. When a user earns points or achieves a certain status within the app or platform, they feel a sense of ownership towards their achievements. This can make them more likely to stick around and continue using the product or service.

Want to learn more?

Decoding the Why explores how high growth companies can integrate the power of behavioral science to unlock product & go-to-market strategies.

Use promo code Patent355 to receive a free eBook and Kindle copy.

get free copy
Cover of Decoding the Why book

More Behavioral Design Theories

Framing Effect

Influence of presentation style on decision-making perceptions and outcomes.

Paradox of Choice

Too many options can overwhelm and lead to decision paralysis.

Bikeshedding

Bikeshedding is prioritizing minor details over key project issues.

Gambler's Fallacy

Misconception that future probabilities are influenced by past events.

Just-World Hypothesis

Belief that world is fair and people get what they deserve.

IKEA Effect

Valuing self-assembled products more than pre-assembled items.