Using the Prospect Theory on your Ecommerce Site

Using the Prospect Theory on your Ecommerce SiteWe have all seen them, the signs and promotions that advertise a limited time offer or event.  But do we know the science behind it and how great marketers set themselves apart by doing the limited time offer promotion the right way?  This has something to do with what is known as Prospect Theory.  Now don’t let me scare you into thinking that I’m going to go into this long technical spiel about this, because I’m not. But let me give you a quick example of what it is.

Let’s say you decided to try your hand at gambling so you take $50.00 to your local casino.  As you’re playing you are currently in the hole $30.00.  Because you are losing money you have the urge to keep playing to get your many back.  Now look at the flip side of that, you are up $10.00.  Now you have the urge to stop and walk with your winnings.  Now, why is that?  That’s the basic concept of Prospect Theory.  Humans are more risk seeking when losing, however, are more risk adverse when we are winning.  That’s as technical as I’m going to get but I believe that it paints a general picture of the concept of Prospect Theory.  Now how do you apply it to your eCommerce business and your Promotion cycle?


By offering limited time offer promotions you’ll put a feeling of urgency in your customers as they will be more risk seeking because of the opportunity of missing (losing) out on the sale.  However, you have to do it in the right way.  The article Prospect Theory – Why Limited Time Offers Work notes that it’s good to give  a reason that your customers can use to justify their purchases after-the-fact.  So instead of just saying that your sale is only for a limited time, explain why the deal is for a limited time.  That way the customer can justify the reason to act on the deal and limit the buyer’s remorse in the decision.


So bottom line, get people to feel like that are about to miss out on something big if they don’t participate and give them a reason to justify the buy so that they don’t feel bad about the purchase later, i.e. let them see the value on what your trying to sell to them. 

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