Leveraging The ‘Endowment Effect’ For MSPs

The endowment effect, a concept rooted in behavioural economics and coined by the eminent Richard Thaler, is the theory that people tend to assign more value to things simply because they own them.

If you remember Gollum from Lord of the Rings and how he ended up being infatuated by the ring, you’ll know what I mean. Some practical examples in everyday life could include when someone takes a car for a test drive, the endowment effect starts to kick in. Or if you’ve ever lent someone your lawnmower you’ll know exactly what I mean.

How Can MSPs Use It?
As an MSP owner, you might see this in action if you have ever let a client have a high-end laptop for while, yet that’s not always practical – so how else can you use it?

This potent psychological bias can be harnessed by managed service providers (MSPs) to foster client engagement and loyalty in the relationship – rather than just in objects and ‘things’. That is to say that by encouraging a sense of ownership over their managed services, MSPs can enhance client relationships and drive business growth. Here’s how:

  1. Personalised Solutions: The first step to harnessing the endowment effect is through the provision of personalised solutions.

    When services are tailored to meet the unique needs and preferences of a client, they are more likely to feel a sense of ownership over the service. MSPs should strive to understand their clients’ businesses deeply, enabling them to design and implement solutions that align closely with the client’s organisation. When I conducted research for a number of MSPs and spoke directly with over 80 end-clients, one of the BIG drivers in their attitude towards their MSP was how much they felt that the staff at the MSP properly knew them as individuals and their business processes too. Along with speed of response, this aspect was pretty important (I’d say essential) to a successful relationship.
  2. Involve Clients in Decision-making: Encouraging client involvement in decision-making processes is a powerful way to foster a sense of ownership. By doing this, you not only provide them with a sense of control but also make them feel valued and important and that you’re not ‘riding roughshod’ over them or abusing your relationship. When I say ‘abusing’, I mean that having an asymmetrical technical knowledge in a relationship can make people feel vulnerable and can encourage some supplieres to take advantage

    For example, inclusion in the decision making process when it comes to choosing equipment can transform the relationship from a simple vendor-customer dynamic to a proper partnership.
  3. Transparent Communication: Transparent and regular communication is vital in establishing and maintaining a sense of ownership. By keeping clients informed about the status of their services, potential issues, and how they are being managed, you are reinforcing their perception of ownership. Moreover, it creates a climate of trust and openness, which further strengthens the client-provider relationship. Basically, if the client only ever hears from you when there’s a technical issue or when they get your invoice – there’s something seriously wrong with the relationship!
  4. Education and Training: Providing clients with the necessary education and training about their services also promotes a sense of ownership. This includes educating clients about the benefits, functionalities, and potential issues of their services. By doing so, you’re empowering them with knowledge and making them feel more involved and connected to their services.

    Giving clients access to a training portal could do exactly that – in fact contact us at MKLINK for more details if that’s of interest. Remember – customers don’t like having good things taken way!
  5. Feedback Mechanism: Lastly, establishing a robust feedback mechanism can also help in fostering a sense of ownership. Actively seeking and valuing client feedback not only improves your services but also makes clients feel that their opinion matters. It’s another form of involving them in the decision-making process, giving them a stake in shaping the service.

    As an aside, this will also help flush out more Google reviews and referrals – something I’m particularly keen that people do more of.

In conclusion, by harnessing the endowment effect, MSPs can significantly enhance their client relationships, fostering loyalty and improving client retention. Not only that, there will be opportunities to use it at the front end of the sales process too – with various offerings you can use to create an opportunity.


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Mike Knight