I’ve been through quite a week, and it’s not exactly over yet. This morning I had my second Marketing exam of the semester and although I wasn’t as prepared as the first (I had only started studying 24 hours before the day of the test) it wasn’t too bad. My exam was on consumer behavior, market segmentation, and product development and management.
I was in lecture this past week when we discussing an article that we were assigned to read in the Harvard Business Review called Eager Sellers and Stony Buyers by John Gourville. In it, Gourville talks about something called the endowment effect. Now, I didn’t realize it while I read the article the first time, but like everything I learn in Marketing class, it is highly applicable to my life.
The endowment effect says that you value something more if you feel like you own it. Thus, if I were to give you a pen, you would value it at a higher price than you would if you had to go out and buy that same exact pen. You would have to be paid more to get it off your hands than you would be willing to pay for it to get in your hands.
There is also loss aversion, which means that consumers do not want to lose benefits they have when switching from one product to another and status quo bias, which means exactly what it sounds like. We tend to stick to the status quo.
Together, these three phenomena work together and make consumers value the products they currently use by a factor of three.
Now here’s the interesting part. Producers, or innovators, feel the exact same way about the products they develop. And it’s not surprising. Imagine working on a new product for a long time. You’ve invested so much into. Of course you are going to value it. Innovators feel like the products they development are in a way their “children.” This is how the endowment effect works on producers. They also see the benefits of their product and sees not using them as a loss and set their product as the status quo. So combine the factor of three from the consumers with the factor of three from producers and you get the 9X Effect. This diagram from the article neatly sums it up.
So how is this related to my life?
If you’ve been reading my blog, you’d know that this past summer I tried to launch a new collection on Etsy of knitted bow ties, bracelets, and collar necklaces. I was super excited to get it going. I thought it was unique, fun, and original, and that it would be a hit! Over the summer I worked diligently on knitting up my products in different colors, sizes, and styles. I amped up social media promotion on my blog and Tumblr. And while I started getting a lot more views on my Etsy storefront, I wasn’t getting many likes and sales were absolutely nonexistent. I didn’t understand why.
At first I believed it was because I was relatively unknown on Etsy. It takes a lot of money and time in order to promote yourself as heavily as some other Etsy sellers who get tons of sales and I wasn’t willing to put that much into it. That’s why I switched to Storenvy.
But now, I realized that it was also in part due to the 9X Effect. I thought my items were so cool and that there was this need for them. I had never really seen items like mine when I spent hours searching on Etsy for things that already existed so I could differentiate myself from the competition. Yeah, I did my research. But it turns out that I valued my products too high and Etsy buyers weren’t seeing what I saw in them.
I think what I and other innovators out there need to consider is that what you might think is unique and awesome and need-fulfilling others might not. They don’t want to leave their comfort zone. So when coming up with new products, be sure to remember that the 9X Effect will form this gap between what you want and what your potential customers want.
With all that being said, I really hope I get an A on my exam because I doubt most of my peers go home and write blog posts about marketing in their every day life. And if you want to know a fun fact, Etsy appeared on my exam. The answer was c) Etsy is an example of niche marketing. If I got that one wrong, I don’t know what I’d do with my life.
Look forward for some more posts this weekend! I’m ready for a relaxing one. I’m planning on writing a few blogs, knitting some of my sweater, and watching some TV!