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By applying the endowment effect and the status quo bias, I have built a behavioral framework around the three entities that drive the market potential of any innovation: the new product or technology itself, the consumer who must adopt it, and the company that designs it. Innovations and behavior change. The successful adoption of an innovation often involves trade-offs. While consumers may obtain highly desirable new features by
buying an innovation, they often must give up some of the benefits of the incumbent product. Consumers rarely view these trade-offs as simple behavior changes; they see them as gains and losses. Provide a consumer with a new benefit, and she will see it as a gain. Take away a benefit,
and she will see it as a loss. If she buys a Segway, for instance, she can run errands more quickly, but she will sacrifice the health benefits of a brisk walk. Conversely, reduce a current cost, and people will perceive it as a gain;
impose a new cost, and it will be treated as a loss. TiVo DVRs, for example, allow people to eliminate the expense of buying videotapes, but they must put up with the clutter of yet another electronic device. As the exhibit “The
Trade-offs Innovations Demand” shows, most innovative products suffer from a gain-versus-loss syndrome.

Consumers and behavior change. Consumers view products they own or use regularly as part of their endowment. As a result, they assess innovations in terms of what they gain and lose relative to those existing products. A lifetime of driving gasoline-powered cars, heating homes with oil, and reading paperback novels has led people to treat those familiar options as the status quo. As a result, the losses consumers will incur in switching to electric cars, obtaining power from wind turbines, and scrolling through e-books will have a far greater psychological impact than will the gains from using them. As
pointed out earlier, consumers overvalue losses by a factor of roughly three. Therefore, it’s not enough for a new product simply to be better. Unless the gains far outweigh the losses, consumers will not adopt it. For example, the benchmark most consumers would have used to assess Webvan’s attractiveness would have been the physical shopping trip. By signing up for Webvan, a consumer no longer had to drive to the store, walk through the aisles, physically place his purchases in a cart, stand in the checkout line, lug the groceries to the car, and drive home. To obtain these gains, however, a
shopper had to give up some benefits inherent in a shopping trip. No longer could he cherry-pick the best cuts of meat, gain inspiration for dinner by seeing what looked good, or be reminded by a display that he needed ketchup. Most consumers would have viewed giving up those benefits
as losses and, since they overweight losses relative to gains, would have found Webvan less attractive than the status quo.Was the overweighting of losses the only reason Webvan failed to gain traction in the marketplace?