The Endowment Effect: why useful trials make for sticky products

The endowment effect is a psychological phenomenon where people value things more highly simply because they own them. It's a cognitive bias that can be used to make your product stickier.

In a famous experiment, participants were given a coffee mug and asked to set a price at which they would be willing to sell it.

The average price they gave their shiny new mug was about $7.

Another group of participants were asked to set a price at which they would be willing to buy the mug.

In this case, the average price was $3.

...In other words, for the exact same object, participants assigned a higher value to the thing they owned versus the thing they were thinking about buying.

The misalignment between these two prices is the endowment effect in action. People value things more highly when they own them.

Free trials and the Endowment Effect

One way is to offer a free trial of your product. By giving people the opportunity to use your product before they buy it, you create a sense of ownership. They become attached to the product and are more likely to continue using it after the trial period ends.

Companies like Spotify and Netflix take advantage of the endowment effect by getting users hooked quickly. By offering free trials, they give new customers a chance to feel what it's like to have access to their vast libraries of media.

This creates a sense of ownership, making it hard to part ways with the service when the trial period runs out. The value they see during the trial makes it easier to pay for the service, and keeps customers coming back for more.

Similarly, Slack and Notion use the endowment effect by empowering free users. By offering thoughtful free tiers, they make their products sticky and useful. Once they're onboard, it is really hard for customers to give up what they've gotten used to.

By the time their users get to the end of their trial period, they are so attached to the product that they can't imagine going back to the way things were before.

Designing a great trial experience

To make the most of the endowment effect, it's important to design a great trial experience. Here are a few tips to get you started:

1. Make it easy to sign up: The easier it is for people to sign up for your trial, the more likely they are to do it. Remove any barriers to entry and make the process as simple as possible. In many cases, this means not requiring a credit card up front, as counterintuitive as that may seem.

2. Show value early: Give people a taste of what your product can do right away. Show them the benefits of using your product and how it can help them solve their problems. This may also mean giving unfettered access to your product during the trial period, and restricting access to premium features only after the trial ends.

3. Measure success: Track how people are using your product during the trial period. Look for patterns in usage and identify areas where people are getting stuck. Use this information to improve your product and make it stickier.

4. Offer support: Make sure people have the help they need to get started with your product. Offer tutorials, guides, and customer support to help them make the most of their trial. Use information collected through analytics to offer personalized tips and support to users.

You've spent countless hours building an great product - make sure people get a chance to see how great it is. Offering a free trial is a great way to do that, and the endowment effect can help you make your product stickier in the long run.

Tools for making a valuable free trial

Setting up a free trial for your product doesn't have to be complicated. There are plenty of tools available to help you get started. Here are a few to consider:

1. If you use Stripe for subscriptions, you can configure a free trial period for your customers. This allows them to try your product before they buy it, without having to enter their payment information up front.

2. It's nearly impossible to get your pricing strategy right on the first try. That's the thesis that my friends over at Stigg have based their products on. They make it easy to test different pricing strategies and see which one works best for your business.

3. If you're building a developer product with usage-based billing, you should check out Unkey.dev - they make it dead simple to add analtics and usage-based billing around API keys to your product.

Some products-in-progress worth checking out

• Pastmaps is a vast library of historical maps that you can overlay on modern maps. Seeing how your neighborhood has changed over time can be really eye-opening. Pastmaps has a 7-day free trial for its premium features, and is being built by Craig Campbell, who goes by @that.map.guy.craig on Threads.

• PodCharm is a product designed to help podcasters do a better job of growing their audiences. PodCharm's free tier is super generous, and sends a strong signal: PodCharm will be successful only if its customers' shows are successful. That's a win-win alignment of incentives. Shout out to my dude Tony Mastrorio for building this. Give it a shot if you're a podcaster.