Consumers Case

As consumers, we need sufficient incentive to move from an old product to a new one. Consumers do not make unbiased judgments while buying a new product and almost always compare new product to the old one to understand the benefits being offered. This behavior is called as the "relative advantage". However, we fail to take into account the many biases that plague consumers while making these decisions of new product purchase. These could be biases like endowment effect, status quo bias etc.

For example - When the satellite radio was launched for radio listeners consumers who had to switch to this form of radio were influenced by various biases. Moving to satellite radio meant not being able to listen to the local news, their favorite music jockeys or local community offers' ads, and that not just meant a shift from their status quo but also felt like a loss. This loss aversion made them value their existing service much more than the new product, even though the sellers thought that an ad free radio service would be easily acceptable by consumers. Together endowment effect and status quo bias, lowered the relative importance of the service to the consumers by multiple times.