The decoy effect is, of late, becoming a viral marketing strategy that is adopted by marketers the world over to influence the purchasing decisions of consumers. Dan Ariely’s Predictably Irrational has had quite an impact on the widespread use of the decoy effect in marketing, but the point to consider here is the ease with which the human mind can be influenced using this strategy.
The decoy effect creates a cognitive bias in the minds of consumers by altering their preferences between two alternatives by introducing a third, which is an entirely irrelevant choice.
What is the decoy effect – an overview
In its most straightforward explanations, marketers would define the decoy effect as introducing a third, less attractive option to the consumers to guide their preference to the most lucrative option from the business’ perspective. While this might sound straightforward, this strategy involves indirectly persuading the target audience and controlling their choices.
By employing the decoy effect, marketers introduce a third option, which is highly inferior to the first option and slightly inferior to the second option. The most common places where you will see the decoy effect being used are in the beverage menus of most restaurants or fast food joints. The small, medium, and large capacities offered by these restaurants have a very marginal price difference between the medium and the large. Still, there is an evident price difference between the ‘small’ capacity and the ‘large’ capacity.
Here, the medium-capacity plays as the decoy, making the ‘large’ option seem more viable economically to the consumers who may now find the ‘small’ capacity not very appropriate in the comparative sense when compared with that of the ‘medium’ capacity beverage.
In the above scenario, you may notice that the ‘medium’ capacity option was introduced with the aim to influence the consumers into buying the ‘large’ capacity option that will be most profitable for the business. If the medium capacity option was not available, there is a greater probability that the most preferred capacity for customers could be the ‘small’ capacity.
How does the decoy effect work?
Studies by famous psychologists indicate that consumers experience anxiety when they have too many choices. This choice overload makes them simplify their decision-making process by focusing on specific criteria, which is most likely the price and quantity or value.
Consumers compare the price of the product they would have preferred without the third option and the value that it would derive and compare it with that of the option they would not have preferred. The introduction of the third option is done by the marketers or advertisers in such a way that the less preferred option, usually seems to be more viable and more worth for the price by the customers.
Why your business should not ignore the decoy effect?
The decoy effect was first experimented by National Geographic at a movie theatre where they studied the impact on consumer preferences for purchasing popcorn packs when a medium-sized pack was introduced, which was priced marginally lower than the large pack. The shift in the preference of consumers to large packs from small because they found it worthier in comparison to the medium packs shows that psychological pricing techniques can help businesses in manipulating the purchasing decisions of their target audience.
The bottom line
The basic aim to introduce the decoy effect by any business is to make the consumers overlook the least expensive product or variant that they offer and promote the same of the most expensive variant by making it seem affordable in terms of price and quantity (or value) when compared to the median-priced product.