navigating sunk cost effect

The sunk cost effect is a well-known business term which is usually cited while explaining cases of businesses that dug their own grave as a result of an inability to quickly pivot away from a poor strategic path undertaken due to an endowment effect tied to the costs that have been incurred within that path. Pivoting away shuts the door for good to realize any business value from an investment that has already been made in a particular strategic direction. Hence, the decision to do so is difficult and a lot of businesses enter into the sunk cost trap. However, what I found really interesting was the deployment of sunk cost effect by businesses to their advantage. A popular example is the e-commerce behemoth Amazon with their Prime membership. I always wondered the economics behind being able to provide Amazon Prime members with an OTT and music streaming service along with free delivery while shopping, for a relatively meagre annual fee. I came to know later on, that the OTT and music streaming services (most likely cash guzzlers) were basically hooks to reel in consumers into a cleverly designed psychological trap. Most users primarily purchase a prime membership for the streaming services, however when there is an online shopping need for the user, Amazon indefinitely becomes the go-to-choice over any other e-commerce alternative, as users want to extract maximum utility from their investment i.e. subscription fee. Another interesting variation of applying sunk cost effect is of Tesla and their free superchargers. Here the free superchargers partially serves as a hooks to reel in consumers to buy an expensive Tesla EV over cheaper gasoline-fueled vehicle alternatives to save drastically on operating costs. Sacrificing the realization of any direct monetary value from the superchargers is a small price to pay for a bigger picture goal i.e. to drive growth in the more economically viable EV sales which can compensate for the losses incurred by the supercharger network. From a psychological standpoint, consumers who have purchased a Tesla will try to utilize their vehicle more than they need so that they can derive maximum possible value from the free superchargers which they are able to use as a direct result of purchasing an expensive electric vehicle. This results in an increase in overall usage of Tesla vehicles which plays right into Tesla’s long term strategy of building autonomous vehicles. Each Tesla vehicle collects vast amounts of visual data during their rides and developing the artificial neural networks for making autonomous vehicles a reality requires a large amount of training data. These are two interesting cases of businesses playing with hidden biases of consumer psychology to positively serve a useful business or technological outcome.