Greed and Fear are powerful motivators for marketers and fear is the more powerful of the two when it comes to financial issues. Numerous behavioral studies have shown that people are risk averse i.e. they asymmetrically avoid loss over the opportunity to gain. Consequently, marketing that appeals to this fear of loss is effective.
Let's illustrate with examples:
Headline which features opportunity for gain:
Earn More from the Balance in Your Existing Annuity
Headline which features loss avoidance:
Will You Lose 40% to Taxes When Your Annuity Matures?
The fear-based headline generates 4 to 5 times the response based on this writer's experience.
Is advertising and marketing that appeals to fear ethical?
Those who think it's "bad" to appeal to fear often state that the marketing or advertising in this manner incites fear. In other words, these critics contend that the words are so powerful, they can create fear that was not already present. If that were true, then with the properly worded marketing, you could attract unlimited prospects and convert all of them to clients. But the best marketing minds know that Americans are not so gullible.
The best marketing minds know that if you send an effective piece of direct mail to a targeted audience, a 1% response is very satisfactory and 2% is outstanding. This fact tells us that 98% to 99% of the audience is not swayed by the message. We therefore need to conclude that we can't get the audience to do as we wish simply with well-crafted words – i.e. Americans are not that gullible.
Thus, the reason that fear-based marketing works is because it appeals to a fear already present with the prospect. Does it seem unethical to appeal to a fear that grips your prospect and then offer to take away that fear?
Millions of seniors have purchased a home-alert system because of the famous tag line, "Help, I've fallen and I can' get up!" This is a direct appeal to their fear of being alone, getting injured and unable to help themselves. I would argue that by appealing to this fear and then providing an effective solution, the seller has provided a great service to the buyers.
There is nothing wrong with fear-based marketing. Critics look only to the fact that they in fact may possess the fear being touched by the marketing and are uncomfortable. Proponents however look at the end results of helping to assuage prospects' fear and provide a valuable solution. Everyone wins.
P.S. For those worried about compliance issues: you may have an issue with your firm when using fear-based marketing but that is not a FINRA issue, that is an internal firm issue. This writer had FINRA's predecessor, the NASD, review a seminar invitation titled, "How to Screw Up Your Retirement" and the NASD made no comment about the title.