With the Comprehensive Spending Review only a week away, communications is now the cabinet’s most important fiscal tool. A clear strategy is emerging. From David Cameron’s standpoint, it doesn’t really matter where the knife falls as long as the right message accompanies the pain. The amount of time spent explaining the proposed cuts is dwarfed by efforts to inform us of the potential consequences of inaction. There’s a reason for this: the coalition understands the theory of loss aversion.
Defending his decision to abolish child benefits for households in which one parent earns over £44,000, Cameron said the measure raises £1bn, “and that is £1bn that we don't have to take off the poorest families, or off the health budget, or the schools budget.”
In other words, if we don’t take this money from the rich, we’ll take it from the poor, or even worse, the children. Drink this medicine, or the puppy gets it.
Cameron uses these conditional threats liberally and deliberately. “You have to address the massive welfare bills,” he said in June. “You have to address public sector pay bills… Otherwise you will have to make reductions across the board...”
And:
“One of the most shocking things is the extent of the interest we are paying on our debt. If we don’t do anything about it, it is going to be £50, £60, £70 billion... We will be spending more on debt interest than we do on educating our children and defending our country.”
This isn’t just scaremongering. Social psychologists recognise this language structure as an attempt to manipulate our natural aversion to loss. According to Noah Goldstein, Steve Martin and Robert Cialdini, the human “tendency to be more sensitive to possible losses than to possible gains is one of the best supported findings in social science”.
In their book, Yes! 50 secrets from the science of persuasion, Goldstein et al cite the age-old business school case study, Coca-Cola’s attempt to change its formula from old Coke to New Coke, as evidence of our universal sensitivity to potential loss over gain.
In 1985, Coca-Cola decided to sweeten its formula in an attempt to make it taste more like Pepsi, which many consumers said they preferred. Coke blind-tested its new, sweeter drink on 200,000 people, 55 per cent of whom said they preferred it. When the blindfolds were lifted, and consumers told they were drinking New Coke, their preference for the new formula increased a further six per cent.
Backed by extensive market research, the company thought it was onto a winner. But new Coke bombed. Consumers hated the new variety so intently that they campaigned for the old Coke to be reinstated. The episode proved a public relations disaster. It was also difficult to explain. Why did consumers reject a taste they had overwhelmingly preferred during testing?
Some marketers attribute the anomaly to a brand loyalty so intense that consumers essentially ignored their own taste buds in an effort to preserve the status quo. But according to Goldstein et al, what really happened was that Coke’s marketing team underestimated its customers’ natural aversion to loss.
“During the taste tests, it was the New Coke which was unavailable to people to buy, and so, when they knew which sample was which, they showed an especially strong preference for what they couldn’t otherwise have. But later, when the company replaced the traditional recipe with the new one, now it was the old Coke that people couldn’t have and it became the favourite.”
It was the fear of losing old Coke that prompted the extreme reaction. How does this information help Cameron’s communications team? Because the notion of loss is so compelling, an announcement that shows people what they have to lose will always be far more effective than simply showing them what they have to gain. Most marketers realise that “50 per cent off” will always be less successful than “Last chance to get 50 per cent off”.
For a government preparing to announce a series of unpopular public sector cuts, the theory of loss aversion presents a challenge. Every cut it makes will likely produce an emotional reaction disproportionate to the perceived value of the original benefit.
Consider the child benefits row. The public reaction to the removal of child benefits for high earners (many of whom said they didn’t even use the benefits for living expenses, preferring to set up savings accounts so that their children can enjoy the benefits in the future) shows the difficulty of implementing a heavy cuts programme. Whether or not we personally benefit from a particular service the coalition plans to cut, we are pre-programmed to resent the removal of that benefit.
But the government can also use its knowledge of loss aversion to plan its communications strategy. By exploiting our fear of bigger, potential losses in the future, it can neutralise our natural aversion to losing certain services right now. Watch Cameron’s team announce the cuts, and follow it with a reminder of what we stand to lose if we don’t take the medicine.
Pic credit: The Prime Minister's Office
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