FOMO and new products: Why parity is not enough

Think about the last time you switched brands. Maybe you’ve started using a new washing powder, or maybe you swapped your daily coffee for one you preferred. In making this shift, you not only took up a new habit, you ditched the old one too.

The flip side of making a switch isn’t something we give much thought to when launching a new product — but behavioural science would suggest that we should. 

Because, for a new product to break through and become a regular, it’ll often need to replace something else. When that’s the case, your customers will necessarily be giving up something.

The psychology of this is fascinating and can help you to understand why the advantage you offer over the competition may matter even more than you realise. That’s why when it comes to product innovation, it’s not enough to ask consumers “will you buy a product” but also to think about the competitive context.

There is a concept in psychology called loss aversion. Essentially, there’s strong evidence that we feel the pain of loss more sharply than the pleasure of the equivalent gain. 

This was first shown in a study from Israeli psychologists Amos Tversky and Daniel Kahneman in 1979. They offered people a bet on a coin toss: tails, they lose $10. Heads, they win. 

The psychologists tested the value of the winning sum that people would need to be offered to accept this bet. And they discovered that most people won’t take the bet unless they can win at least $20. That is double the loss they’d potentially make. 

Kahneman attributes the difference between the prize and the odds to this bias, loss aversion. People are far more worried about the prospect of losing $10 than they are excited about the chance of winning — unless the win is twice as large.

However, gambling is a specific situation. Does this finding hold elsewhere?

Well, a study by the Harvard psychologist Elliot Aronson from 1988 suggests so. He posed as an official from a local energy company trying to sell home insulation. Half of the people he approached were told that if they insulated their homes, they would save 75c a day. The other half were told that if they failed to accept his offer, they would lose 75c a day. 

It's the same amount of money in each scenario, it’s simply that one is framed as a gain, one as a loss. 

Just as Kahneman and Tversky predicted, it was the loss framing that was considerably more effective. Participants who were told how much cash they would be losing were 56% more likely to insulate their homes than those told how much money they could save. 

It’s worth noting there’s a degree of variability to loss aversion: not everyone is affected in the same way.

In 2019 David Blake and Douglas Wright from Cass Business School and Edmund Cannon from the University of Bristol looked into this, and found that the following groups were more loss-averse:

• Women 

• Older people 

• Married, widowed, divorced and separated people

• Parents 

• Those with low financial understanding 

• Those in a tense mood

• And most extremely, retirees and unemployed 

So, if you’re planning to target any of these groups it’s particularly important to bear loss aversion in mind. And considering the length of that list, that’s going to be most of the time.

So, what does this mean for you?

There are multiple implications for this study. On a tactical level, think about your messaging. Most brands tell their audience what they’ll gain from purchase – for example how much money they’ll save. 

The principle of loss aversion suggests you may have more success if you flip this. For example, if you’re a brand offering great value – why not communicate what people will lose if they don’t switch. 

Application in practice: Carphone Warehouse

But perhaps a bigger implication relates to new products. Many brands launch multiple products that are slightly better than the existing competition. But loss aversion would suggest that this approach could be risky. 

The incumbent has a structural benefit. When shoppers contemplate switching, the advantages of the existing brand are supercharged in their mind. Switch away, and they may lose those features. 

In contrast, the advantages of the new brand are framed as gains — but as we can see, these are naturally perceived as weaker. A new product needs to offer more than a slight advantage over existing products — it needs to be clearly better. 

You can act on this principle by making sure you measure how your product stacks up against the competition and only launch if you can achieve a significant and clear advantage. 

Zappi’s concept testing solution, Activate It, offers a way to do this in the form of a product innovation matrix. It looks at two aspects: likelihood to purchase, called trial potential, and product distinctiveness compared with competitors — called breakthrough potential. 

Trial potential (purchase intent) and breakthrough potential (distinctiveness) work together like a pressure test for in-market performance. A product with a high degree of distinctiveness that doesn’t spark purchase intent should be reassessed and further nurtured. 

The inverse — lower distinctiveness but high purchase intent — could be right for short-term release, like a holiday-themed product. Think of all those brands that put a seasonal spin on their popular products without changing them up too much — Reese’s pumpkins or Oreo Boo!, for example.

Ensuring you’ve clearly promoted what you offer beyond the competition can help to move your product towards higher breakthrough potential, as customers consider your product favorably versus what they’ll be giving up.

Whether you have a product at concept stage or nearly ready to launch, comparative tools like Activate It will help add a dash of realism, leading to confident decisions and a more focused approach to product development.

Think fewer, bigger and better.

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To learn more about understanding the effectiveness of your advertising in context, talk to the Zappi team.  

Richard Shotton specialises in applying behavioural science to marketing. He is the author of two books on the topic, The Choice Factory and The Illusion of Choice, and tweets about the topic on the handle @rshotton.