The UnNoticed Entrepreneur

What is the endowment effect and how does it increase ROI by 40%

August 19, 2021 Jim James
The UnNoticed Entrepreneur
What is the endowment effect and how does it increase ROI by 40%
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Show Notes Transcript

When recipients note a business gift as memorable ROI of their business with the giver of the gift increases by 40 % according to an article by Forbes. So why don’t we do it more often? This episode looks at the simple power of giving, a GBP7bn industry in the UK which has grown 9.3% during COVID. So let's talk about what could be a strategy, how much is appropriate, and how to build feelings of reciprocity and trust with employees, partners and customers.

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Hello, welcome to this episode of the unnoticed entrepreneur. Today. I'd like to talk about gifting. And endowment effect. Do you, or do you not give physical products to your clients? To your prospective clients or even your staff and your partners. If you don't, you might want to listen to this episode because actually. The evidence is that we should, and it's all about what is called the endowment effect. So today I'm going to talk about sending physical things, gifts, products, I've just sent. The unnoticed entrepreneur book. To half a dozen people that have impacted me. As a way to say thank you to them for all that they've given to me. So let's just dive in and talk about the endowment effect and giving as a company now. If we take into account that the internet has pretty much been decimating, physical mail. When we look at the statistics. Which have just come out recently. I looked online and there is a gift card association and gift card and voucher sales. In the UK have dropped by 5.4% on a like-for-like basis in the first half of 2020. With leisure sales being so significantly impacted, but. Business to business sales of gift cards. Have increased 9.3%. On a, like, for like, so. for What we've found then is that consumers are not buying as many because they're not going to the retail outlets to buy them. But businesses are giving nearly 10% more vouchers than they did in the past. Why is this well? It's largely a function. Of employers trying to reward staff. I talked to one, American entrepreneur last week. And he talked about how they'd hired a magician. For a company zoom meeting. That's one kind of reward, but people are trying to now. Bind in their teams. With tangible non-taxable benefits now. At the moment you can give out to, I believe a hundred pounds worth of gift vouchers. And it's tax-free. And the gift card associated is tried to lobby to get that increased to 500. But if you were not aware the gift card. And the gifting industry's worth some 7 billion pounds. I personally had no idea. It's so big. But. The B2B. Growth sector is now 75.8% of the market. So it's actually grown as a percentage of the overall market. So B2B gifting. From either the company to staff or company to partner or company to customer. Has grown. And why is that? One of the reasons is what's called the endowment effect. And the endowment effect. Is a sense of ownership. That an item gives to the person that receives it. Over the transaction. So in other words, If we give something to someone else. for example, gifting a book or a soft toy, for example, as we often give children's stores. They've been endowed with something by us and just culturally. There's a sense that we owe them something back. There's a sense of reciprocity. There's a sense of trust. There's a sense that this company. In the same way that if a person gives first. Has taken the first steps to initiate a relationship by investing in the relationship. Certainly where I lived in China for 13 years in Singapore for 12 years before that. One would always go to an event. With gift in hand. So if you were going to, for example, a wedding. You'd give a gift as we do here in Europe. But if you're going to a business event, you'd also give a gift of some kind. Now of course we have rules and regulations in the UK about the size of a gift. And when does it go from being. If you like a sign of, want to build a relationship to a sign of trying to influence an outcome. Of course the truth is that gifting. In social or professional circumstances is trying to influence an outcome. Of course it is. But. The statistics show that. Gifting makes a difference. But it's not just gifting. Now. I saw another study showing that 57% of people claim that receiving mail. Makes them feel more valued. Not email. But hard copy mail. 57% of people claim. That they would get mail from somebody. It makes them feel more valued now in an era where. More and more people are sending e-cards. And emails and he videos and everything else. I raised this because. I've started to think about sending people physical goods. Again. I just went to a wedding and I received a lovely card back from my niece, thanking us for the gifts. Now, when we were younger. We grew up always writing cards and sending Christmas cards and thank you cards and birthday cards and more. Thank you cards. It was a sign of being. Respectful and being well brought up. But culturally, whether it's in China or Asia or anywhere in the world, People feel. That if they are sent something that they're more highly valued. But also the endowment effect kicks in and they feel as though they have some reciprocity. They have some trust. They have some desire. Maybe to engage that company. A chap called Michelle Andre at Mara Sharlyn Christian attorney. Wrote a paper. Tobar 2018 called hidden persuaders. Do small gifts, lubricate business negotiations. Published online. I'll put a link to it. Now. The answer is basically yes. Now the question is though, How much should the gift be? I've just sent these books and the books are of course only 14,$15. Per time. But it's not the value. It's the thought that counts. Isn't it. I just sent to my. Stepmother. Who's come out of hospital. All the elements for a meal. Through Ocado. That have all of the ingredients for recovery. So some arnica cream, some salmon. Some, some fish oil. And some fresh organic vegetables. Because if you look online, there are certain ingredients. That are good for recovery. Now I can send books to people. That have influenced me because they've written books. And their books have influenced me so I could send them a book. So I'm reciprocating with an equal gift. Now there's an article in Forbes. And it's sharing an idea that. We could think about. What value. A client brings to us. And that. If you to attribute. Eva one to two or up to 5%. Of that value. To a gift. That might be appropriate. Now you could take your own measure. Of course. Philosophically though the idea is gifting. With physical products. Goods services or something, which is a money in kind where someone gets to enjoy. The theater. A meal. Maybe a discount somewhere. Book token. Makes a difference that people will feel somehow and rightly The EUV. Either made the first move. In offering. A contribution to the relationship. Or you are repaying them for that relationship. Certainly, as I say, in Asia, in China, people would bring bottles of the rice wine. people would bring certain gifts. To certain events. So certain weddings, for example, would have one kind, a business event might have another kind of category. In China, we never gave knives. And we never gave clocks. There's a story in both of those. But. I mentioned this because as. This Forbes article suggests that. ROI return on investment. For those clients that are given gifts. By the company. The ROI increases in amazing 40%. That's a staggering number. If you think about it, that if you have a recipient. That notes, a business gift as memorable. The ROI will increase by 40%. All right. You may or may not get that kind of uplift. But the question remains. When did you last say thank you. To a client or to a member of staff or a partner. For what they've done for you. In Singapore with east-west public relations. What we used to do was to send the media cinema tickets. Now cinema tickets in the Singapore can also be an experience because you can buy. Like dual seats with, popcorn and drinks, like a whole package. We couldn't be seen to be bribing the media. But we could be seen to be saying, thank you. To be grateful, recognize it. If they went to the movie themselves, they probably didn't buy the full package, but they would go to the movies. And they might really enjoy going with a friend, or a partner and having all the trimmings. I'm raising this because I've just been spending. This afternoon, writing to people that have influenced me. In my journey to say thank you by sending them. Copies of the book. Because I want to share. A token. With them of what they've contributed to me. If you think about what kind of PR that is? I'm not asking them for anything in return. I've pointedly said, I'm not asking for anything in return. I know that the endowment effect will kick in, regardless of what I say. As long as I do the right thing. So is this public relations? I think the answer is that. All activities that impact how people feel. About our company, how our company looks and how is we as individuals? Look and behave. Impacts. The impression. That other people have on us. And that is absolutely public relations. It's just a short episode today because. I'm not here to drone on, but just to share a thought for the day, is it worth gifting? The endowment effect. Can you use that? And as we get close to. China October holiday time for gifting. We get to Halloween. We get to Christmas. We've just been through, Harry Ryer in Singapore and our Muslim friends. There are so many different opportunities to gift. Which are public calendar events. But there are also so many opportunities to gift for anniversaries for your staff. Weddings birthdays accomplishments. What can you do with your partners? To just say, thank you. And send them something physical. Now Austria post just announced that they've got. Parcel volumes increasing by 20%. Direct mail items for the Austrian post have increased. 2%. Around the world businesses. Are sending physical. Goods. Two. They're partners. Some by way of vendor, but some by way of saying thank you. Consider, whether that's part of your strategy to build evangelists for you and your company. Thank you so much for listening to this episode of the unnoticed. Entrepreneur. My name's Jim, James. I hope you enjoyed the show. The book, the unnoticed entrepreneur is out now on Amazon and Barnes and noble. Available for reading as a Kindle or as a paperback. I'd love it. If you download it. Or buy it, order it and leave a review and send me any questions that you've got that over written. Thank you so much. And until we meet again, I wish you all the best. Best of health and best of business thank you and i hope you really get noticed

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