Imagine you own “A-Sleazy Luigi’s”, a pizza parlour. (Please also imagine that was not an offensive stereotype.)

How would you get customers to buy more toppings on their pizza, and spend more money? Would you have to cut prices, or offer some promotional incentive – both of which come at a significant financial cost to you?

Actually, you can increase sales simply by changing the way in which you frame the product – and its price.

Irwin Levin and colleagues ran a study in 2002 which did just that. All participants were offered a pizza to begin with, and told to make their selection of toppings at 50c each. However, half of the subjects were shown the basic, topping-free Margherita pizza ($5.00) and told to build up their ideal pizza with the available toppings; while the other half where shown the ‘fully-loaded’ pizza with all the toppings ($11.00), and told to scale it down to what they wanted.

Rationally, there shouldn’t be any difference in results. Being presented with either pizza should not influence their personal tastes, and financially there was no difference.

But consumers aren’t rational.

When adding toppings, people ended up with an average of 2.71 ingredients; when scaling down and removing toppings, they ended up with an average of 5.29. People who scaled down spent around $1.29 more than those who built up.

The same effect was found by Park and colleagues (2000) when looking at cars, treadmills and computers. When people start with the basic model and add on, they add fewer features, and spend less money, compared to when they start with the ‘fully-loaded’ model and remove. But why?

The answer is loss aversion. People are more sensitive to losses than they are to gains (Kahneman & Tversky, 1979). This manifests itself in the endowment effect – where people will pay a lot loss for an object than they would be willing to accept when selling it. The loss of losing something is far greater than the gain is of obtaining it. So, when people are presented with the ‘fully-loaded’ model, and remove features from it, they are reluctant to do so because of the pain associated with losing them – which is greater than the joy associated with adding them to the basic model.

So what does this mean for you and your sales? There are a number of implications.

  • Where possible, start with the ‘fully-loaded’ model and have customers remove items!
  • Frame your promotions and messages in a way that exploits loss aversion – “Pay 20% more if you buy later” (a loss) may result in more sales than “Pay 20% less if you buy now” (a gain). However, published research has been inconclusive on this point.
  • Use time-limited offers to make sure your customers know they’ll lose out on a promotion if they don’t buy there and then.
  • If you can make your customers already imagine owning the product, then to not buy it would be a loss! For example, you can increase sales by making the product more mentally available (encourage them to see, smell, hear, taste, touch and think about it), as this gets people to imagine owning it.