Companies Can Cash In on Uncertainty
Companies can significantly boost consumer appeal and drive sales by strategically introducing an element of uncertainty into their deals, according to new research from The University of Chicago Booth School of Business.
This phenomenon, dubbed the ‘uncertainty spillover effect,’ suggests that consumers experience greater satisfaction when comparing an actual outcome to a worse potential outcome they avoided.
The Psychology Behind the Effect
The research, conducted by Beidi Hu, Siyuan Yin, and Alice Moon, indicates that people prefer goods obtained from an uncertain prospect over the same goods that were always certain.
The effect works because individuals focus on avoiding a worse outcome rather than missing out on a better one. For instance, if a discount could be 10%, 20%, or 30%, receiving a 20% discount feels like a win because it’s better than 10%.
Real-World Applications and Examples
Experiments demonstrated the power of this effect:
- Participants were more likely to book a hotel at a discounted rate of $102 when it was initially presented as one of three randomly selected hotels, compared to a direct offer.
- A $25 gift card was valued more when its value was initially uncertain (ranging from $15 to $35) before being revealed as $25.
- Receiving a randomly selected coffee sample made participants more likely to sign up for a monthly coffee subscription.
Marketers can leverage this by introducing uncertainty in promotions, such as ‘spin the wheel’ games or scratch tickets.
Important Considerations for Marketers
However, the authors caution against using uncertainty when consumers perceive the product or price as a loss. In such cases, it can lead to negative feelings and a higher likelihood of switching to competitors, negating any potential benefits.