You’ve spent £200 on a new gym membership but you hate going.
You’ve watched 90 minutes of a terrible film.
You keep putting money into a campaign that’s clearly not working.
So why do we stick with things that are no longer serving us? This is the Sunk Cost Fallacy. The irrational but deeply human tendency to continue with something because you’ve already invested in it.
A sunk cost is something you’ve already paid for, whether that’s in time, money or energy. The fallacy happens when that past investment causes us to hold onto it longer that you usually would to justify the investment. This can apply to marketing when you keep strategies and campaigns running long after they’ve stopped being effective and producing results.
Rationally, we should make decisions based on future value, not past cost, but emotionally we hate feeling like we’ve wasted something so we double down instead.
This not only applies to marketers but consumers too. For example if you offer subscriptions or bundled products, it can lead to resentment not loyalty because they think “I’ve paid for it, so I should use it” or “I’ve started so I may as well finish.”
Here’s some do’s and don’ts to escape the sunk cost trap:
Do:
- Focus on future return on investment, not past – ask yourself if you hadn’t started yet, would you still make the same decisions?
- Create clean checkpoints – if you haven’t achieved results by a certain date, make a change
- Normalise quitting – quitting doesn’t mean you’ve failed, strategically quitting is sometimes the smartest decision
- Let your customers off the hook – don’t guilt people into staying, guide them back when it makes sense
Don’t:
- Deviate to increasing the budget – more money won’t fix a flawed strategy
- Tie identity to investment – detach your ego from the effectiveness of the campaign
- Avoid uncomfortable decisions – staying in the comfort zone isn’t strategy, and it won’t generate outstanding results
The Sunk Cost Fallacy reminds us that just because something costs you something, doesn’t mean it still deserves something.
Successful marketing comes from moving forward and not being fixed on the past. Investing even more time, money and energy will never be the fix to a fundamentally flawed strategy but a willingness to pivot and try a different approach will lead you to solutions.