💰 How to Leverage Loss Aversion in SaaS (3 min read)

I’ve been wanting to write this newsletter more but have a problem. While there are countless psychological principles to talk about I haven’t felt like they justify an entire post.

So I’m trying out a little experiment. Along with a pricing breakdown I’m going to write a shorter form post on a psychological principle and explore some interesting ways they’re used in B2B software.

This is very much a test so if you’d like this to continue please share this post with a colleague! It’s completely free and may help you come up with a new design to test.

Duolingo’s Reverse Trial

My partner & I have decided to try and move internationally so I recently downloaded Duolingo.

After a few days of consistency (I’ve never managed much more than that) I had developed a streak and was completing every daily lesson. On my 4th day I received a notification that I was being automatically given access to a premium feature, mistakes review, for 72 hours.

Nice! It felt like a real reward, not something simply given away to everyone (if it was it would be much smarter to do so on Day 1 as only a % will reach Day 4).

There was no credit card required, no additional trial I was opting in to - I had been automatically enrolled, and this is what’s called a reverse trial.

A reverse trial is when you automatically bump users into the full premium experience, then downgrade them when the time runs out.

So why did Duolingo do this?

Well it comes down to loss aversion. They’re showing me a powerful feature of Duolingo Premium without me ever needing to hand over my credit card for a trial.

After 3 days of using (& loving) this feature it’s going to get taken away from me and now I know what I’m missing out on.

What is Loss Aversion?

Loss aversion is the concept that we feel losses more than gains of the same size.

In other words, the pain of losing $20 feels much worse than the pleasure of gaining $20, originally coined by two legends of psychology: Kahneman & Tversky.

After coining the term in 1979 Kahneman decided to demonstrate the theory 13 years later, throwing a coin in the air and asking participants ‘if you lose, you owe me $10. But if you win, how much would you want?’

The results?

Turns out we feel the pain of losses 2.3x more than gains and so to make the coin toss attractive users would need a promised payout of $20-25.

How is it applied in B2B Software

1. Reducing Churn

By highlighting either the Premium features users will lose out on once they tap on the ‘Cancel Subscription’ button you’re tapping into loss aversion.

One example? Typeform

Typeform’s Cancellation Flow

One way to increase the feeling of loss is to introduce personalisation. By showing how many survey responses, files you’ve created, or unused credits you have it makes the user pause and reconsider if they want to wastefully lose all the time & money they’ve invested into this product.

Examples:

• Adobe showing the apps you’ll lose access to & highlighting your portfolio will be lost

• Amazon Audible showing how many unused credits you will lose

To provide a little bit of extra value to my newsletter readers I’m open-sourcing some research I did for a former client on other ways to reduce churn.

Just reply to this email and I’ll send it over to anyone interested in.

2. Reverse Trials

Reverse trials, where you give access to premium features before taking them away, can be helpful to get ‘on the fence users’ to convert or for companies that may have a longer time to value, whether 14 or 30-day trials may not be sufficient.

That’s it for today folks, hope you enjoyed!