Status Quo Bias
Why defaults may be a game-changer
Hey there 👋 - Abhi here!
Happy Thursday to the 4,303 marketers reading this newsletter.
In today's edition, we will break down the Status Quo Bias with a story from Coca-Cola and 3 tactics you can learn from their mistake.
Estimated Reading Time = 4 minutes 24 seconds
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The Status Quo Bias
In countries like France, where organ donation at death is the default, more than 90% of people donate their organs.
But in nations like the United States, where people have to change the setup and explicitly opt in, fewer than 15% register.
How can 1 simple change cause a difference of 75%?
For that, we can thank the status quo bias...
The Coca-Cola Crisis
In the early 1980s, Coca-Cola began to lose market share to Pepsi.
So, to safeguard its leadership status in the cola industry, the company's executives changed the recipe for the first time in 94 years.
With a positive response from nearly 200,000 consumers, New Coke's blind taste tests were a major success.
It was even preferred to the classic concoction by a wide margin.
So the executives went ahead, spending large sums on their advertising campaigns (including this rustic banner).
But despite all the promising tests, metrics, and expert opinions, New Coke was a massive failure. The company noticed:
protest groups that claimed to have a 100,000 recruits
1500 aggressive calls a day (1100 more than the usual)
letters to the CEO calling him "Chief Dodo, The Coca-Cola Company"
In only a couple of months, Coca-Cola announced the return of the classic.
And the response was excellent - the company received 31,600 positive calls on the hotline within 2 days of the announcement.
What started as a mistake reinforced consumers' love for the classic drink.
Now, Coke has soared to new heights and maintains its domination over the beverages industry, with Pepsi still trailing right behind.
If there's 1 lesson Coca-Cola's failure taught us, it's that people hate change.
But why? Here are 2 dead-simple reasons:
Loss aversion - deviating from the status quo, or current state of affairs, is a risk that could lead to losses and regret. In this example, the "New Coke" presented a massive opportunity for loss and regret.
Mental fatigue - when we feel overwhelmed by the complexity of the question asked, opting for the default option helps us avoid stress. However, in the case of Coca-Cola, removing the default option posed a great deal of stress for loyal customers.
But that's enough about Coca-Cola's failure. So what tactics can we learn from it?
3 Tactics For You
1. A strategic default
Multiple studies have shown that people rarely change the default settings. Think about the organ donation example from above - when the default is:
to donate organs, more than 90% donate their organs
to not donate organs, less than 15% register
So, companies like Amazon leverage this effect to increase their revenue. Here's 1 example where their default option is "Subscribe & Save":
For subscription-based businesses, when automatic renewals are the default, the renewal rate increase by up to 4 times.
As a result, there is a significant increase in the customer lifetime value too:
P.S. In my personal opinion, however, this can be seen as an aggressive and unethical way of increasing company revenue. I'd make sure the consumers explicitly agree to automatically renew subscriptions and focus on "softer" tactics like the ones below.
2. Hit the creative "sweet spot"
According to the mere exposure effect, our preference toward an object increases with the level of familiarity.
Similarly, according to Allen Gannett - the author of The Creative Curve - the creative "sweet spot" lies at the intersection of what's novel and familiar.
Too familiar, and it's boring. Too novel, and it's a risk.
But if you hit that creative "sweet spot," you are deviating from the status quo only enough, so people find you're offering both moderately safe and intriguing.
That's how you build a sustainable business, not another short-lasting trend that will soon go "out of date." Again, think back to this Ed Hardy example.
3. Change your narrative with the context
40% of potential new customers are lost to "no decision" rather than competitors.
If you want to attract new customers, I suggest using the disruptive storytelling approach. For that matter, here's the storytelling framework that Steve Jobs used.
But this disruptive approach backfires when applied to retaining users.
Instead, an approach that reinforces a consumer's natural status quo bias increases the intention to renew by 13%, relative to 10% otherwise.
For instance, to reinforce a current customer's status quo bias, you can emphasize the cost of change and the potential losses (e.g., a data transfer error).
That's all for this Thursday. 1 marketing breakdown & 3 tactics to get you started.
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See you again next week,
Abhishek "Chief Dodo" Shah
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