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What do mattresses, Netflix and sex toys all have in common?

What do mattresses, Netflix and sex toys all have in common?

Strategy

Aug,2018

The ingredients of a great night in? Possibly, but definitely not the answer I was looking for (this isn’t that kind of blog). The answer is that they’re all available for extended trial periods; part of a growing trend in the UK to drive brand conversion by applying some tried-and-tested consumer psychology around the issue of risk.

At the heart of this thinking are two related areas of behavioural economics – Risk Aversion and the Endowment Effect. Both are fully explained by psychologist Daniel Kahnemann in his fascinating book ‘Thinking, Fast and Slow’, and clearly show why ‘trial’ is such a powerful retail tool.

Free trials and free returns have been around for ever, from Freemans catalogue shopping in the 1980s (ask your mum), to blagging tiny cubes of free cheese at your local market. But the extension of this principle into big ticket items, subscription offers and items of a more personal nature (we’ll come on to these in a minute) is a much more recent phenomenon.

Consumer psychology helps you sleep easy, see things more clearly

So what consumer psychology is at play here? The Endowment Effect works on the principle that we apply a much higher value to items we already own than ones we don’t, whilst Risk Aversion relates to consumer tendency to reduce any uncertainty around a purchase as much as possible. One of the most recent examples of leveraging both these principles to great effect is start-up mattress retailer Simba, who offer a 100-night free trial on any of their products.

What Simba knows, of course, is that if your Simba mattress is already in your bedroom, adorned with your favourite bedding and scatter cushions, you’re far more likely to be attached to it than if it’s on a bed in John Lewis (particularly if you’ve already taken the old one to the tip, which you have). They also know that a mattress is a high-consideration, big ticket item that you’re unlikely to repurchase for ten years or more; so by mitigating the risk and giving you a way out, you’re less likely to lose sleep over shelling out hundreds of pounds. It’s definitely working – after just 18 months, Simba is now market leader in Europe.

Specsavers have built their entire contact lens business model around Risk Aversion, based on the insight that switching to contact lenses is a big step for many people, and not everyone can get to grips with them. So Specsavers let you try a pair of monthly lenses or five pairs of daily disposables without any obligation to sign up for a monthly scheme. It’s a no-brainer for Specsavers – minimal loss if the customer doesn’t decide to go ahead, and those who do usually sign up for a regular monthly contract that can last for decades. I did a free contact lens trial with Specsavers in 1994, and I’ve now had a monthly direct debit with them for 23 years – I recently calculated I’ve given Specsavers nearly £4000 in that time, all off the back of a free trial.

We’re also seeing Risk Aversion at play in subscription models like Netflix and Amazon Prime – as consumers we’re reluctant to invest in a 12-month subscription in case we don’t use it, so both these big retail/media players give us a risk-free 30 days to find out. By the end of the 30 days, Amazon and Netflix know that two things are likely to happen – you either use it loads (possibly because it’s free) and now consider it a subscription you can’t live without, or you forget to cancel it and end up paying for it anyway. Interestingly, the latter is exactly my experience – I fully intended to cancel my Amazon Prime trial after 30 days, but forgot; in the six months since I’ve used it so much that I’m now more than happy to pay £79 to renew.  But without the ‘way out’, I wouldn’t have signed up in the first place.

Frisky business: Lovehoney’s sweet 365-day returns policy

As a final example of both the Endowment Effect and Risk Aversion, we should look to leading online sex toy retailer Lovehoney. It’s a business built on people trying something new, but often consumers are reluctant to do so because it might not meet their expectations. So Lovehoney has a 365-day returns policy – you can send back any product (even if used) within 12 months for a full refund – which is why the average Lovehoney customer checks out a basket worth £35 and containing three items. Customers hugely appreciate the returns offer, but use it far less you might think; it’s simply a matter of peace of mind, and valuing the goods more once you already own them.

At a time when marketers are looking for increasingly innovative ways to capture consumer attention and drive sales, there are still enormous gains to be had from these two nuggets of Behavioural Economics. Free trials and free returns might have been round since the dawn of marketing, but in the right category, they’re still one of the best ways to deliver the goods.

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