Reconfigure Your Own Endowment Effect

With the increasing popularity of virtual goods, you would do well to rethink and reconfigure your endowment effect as a retailer.
     The “endowment effect” refers to people placing a higher value on objects they own than equivalent objects that they do not. Among other consumer behaviors, it helps explain why people resist selling used items at a price others will find attractive and why people hesitate tossing foods with an expiration date from last week when they wouldn’t eat the same food at a friend’s house if the expiration date has passed.
     The endowment effect is set off when the purchaser takes physical possession of the product. In a brick-and-mortar store, this often occurs before the customer pays for the product, as they grasp the product to place it in the shopping cart or as they carry it to the cash/wrap.
     With ecommerce—as with phone and mail orders—the purchase occurs before physical possession. Researchers at California State University-Sacramento found that when a direct marketing customer has confirmation of payment and shipment, there are signs of the endowment effect, but it is not at its strongest until the customer is holding the product.
     It’s natural to think about the customer experiencing the endowment effect and about it applying to physical goods. What about the retailer experiencing it, and what about virtual goods? Do you overvalue virtual goods? According to a recent StorefrontBacktalk article, it’s likely you’ll be called upon to set a value attractive to the customer for ebooks, ring tones, video games, rights to use cloud software, and other virtual goods from you.

• What, if anything, should you charge the purchaser for the rights to loan that virtual good to someone else?
• Should you consider the loan as allowing the other person to preview the virtual good and therefore become a potential customer? Should you reward the person doing the sharing, such as by giving them a discount on a subsequent purchase?
• What fee structure should you set for resale by the customer of virtual goods they’ve purchased from you? Unlike with physical goods—such as a hardcover book—the physical characteristics of the goods don’t suffer from being a used item. In fact, if you’ve provided upgrades of the virtual good, the value may be even greater at the time of resale.

Click below for more:
Purge Expired Products
Consider Having Resale Merchandise