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

Hello and welcome to this episode of The Unnoticed Entrepreneur. Today I'd like to talk about gifting and the 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 significantly impacted, but business-to-business sales gift cards have increased 9.3% on a like-for-like. So what we 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 a reward. But people are trying to now bind in their teams with tangible, non-taxable benefits. Now, at the moment, you can give up to, I believe, £100 worth of gift vouchers, and it's tax-free. And the Gift Card Association is trying to lobby to get that increased to £500. But if you were not aware, the gift card and the gifting industry is worth some £7 billion. 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 in 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 and 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 a 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 e-videos and everything else. I raise 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, 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 Michel-André Maréchal and Christian Tony wrote a paper October 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 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 can 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 were to attribute either 1 to 2 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, that you've 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 Mao, 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 an 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%. Now, 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 EastWest Public Relations, what we used to do was to send the media cinema tickets Now, cinema tickets in 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 that 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. In fact, 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 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, as it were. 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 Hari Raya 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 to their 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 is Jim James. I hope you've enjoyed the show. The book The Unnoticed Entrepreneur is out now on Amazon and Barnes& 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 have arisen. 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.