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Mind Over Value: Reference Point Dependence

Value Propositions are central to marketing strategy, defining an offering’s merits in alignment with customer needs. However, they mostly ignore the “predictably irrational” aspect of human behavior that influences value perception, undercutting their own potency.

In this three-part article series grounded in Behavioral Economics—and more specifically, the Prospect Theory’s Value Function—we spotlight key behavioral biases tied to value perception. Using fintech exemplars, we’ll showcase how understanding these biases can bolster value propositions, granting a marked competitive advantage. Today, we kick off with the principle of Reference Point Dependence.

Reference Point Dependence

The foundational concept of the Value Function is Reference Point Dependence. People assess gains and losses in relation to a reference point, serving as their baseline. While utility theory posits uniform value changes, prospect theory underscores the subjective nature of value, hinging on an individual’s starting position.

Take two individuals: one begins with $200 and receives an additional $200, while the other starts off with $800 and gains the same amount. Even though both experience a $200 increase, their appreciation of this gain diverges significantly because of their distinct initial reference points.

Grasping customer’s reference points is crucial. They offer insights into customers’ benchmarks and reveal where improvements would resonate most.

In much the same way that these individuals’ perceptions differ based on their starting positions, the Buy Now Pay Later (BNPL) model emerged as a response to traditional credit card systems. For years, credit card companies focused on small upgrades and big advertising pushes, thinking they’d maxed out on major features. Yet, by evaluating customers’ reference points, a key area ripe for innovation became clear. Addressing the enduring challenge of constant debt and credit management held more significance than anything else. Spotting this need, companies like Klarna stepped in, introducing a transformative alternative.

A connected behavioral pattern is the Status Quo Bias—a tendency towards consistency, manifesting as inertia or loyalty to past choices. It’s a hurdle for businesses, which, nonetheless, must be respected. BNPL trailblazers, while redefining credit management, retained most important credit card benefits—like immediate product access and deferred payments. Building on this foundation, Affirm further evolved by eliminating late fees, while ZIP reincarnated the popular credit card feature of cash-back rewards.

Another case in point is the Danish neo-bank Lunar. To overcome the Status Quo Bias, they launched a campaign titled “Try another bank without leaving your old one,” nudging consumers to try Lunar while keeping their existing bank. This encouraged customers to experiment with Lunar—effectively appeasing emotions and softly confronting the status quo.

Additionally, Lunar crafted second narrative, juxtaposing the unappealing representation of the “Old Bank” (as an older, mannerless male in a suit) with their avant-garde ethos (as a young lover). This strategy is rooted in the Contrast Effect—another cognitive principle that emphasizes how stark comparisons can skew customer perceptions.


In sum, understanding behavioral biases isn’t just a theoretical exercise—it’s a game-changer. By tapping into customer reference points, businesses like Klarna have redefined entire sectors, showing that aligning deeply with psychological nuances can revolutionize offerings. With this foundation, we’re poised to explore further.

Stay tuned for the next part, where we’ll delve into the pivotal concept: Loss Aversion. Discover its role in crafting powerful Value Propositions and shaping perceptions. See you in a week!

Georgi Zai
Georgi Zai
Georgi Zai is a senior marketer with 20 years of experience in the financial and IT sectors, and an aspiring product manager. He has had impactful roles at Saxo Bank, UBS, and Falcon Bank, where he's contributed to launching innovative financial products and applications. Skilled both in strategy and execution, Georgi also brings a background in UX design, paired with a passion for behavioral science. He shares his expertise as a mentor to startups. Outside the office, he's an avid athlete and has completed 16 Ironmans, including the esteemed Ironman Hawaii. Connect with him on LinkedIn.

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