Decoy Effect: An Unpredictable Effect in Marketing

Price is the most sensitive aspect of the marketing mix. Numerous thoughts are put into setting prices that nudge us towards spending more.

Suppose you are shopping for a mixer and juicer. You see two options before you. The cheaper one, at $79, promotes an 800 watts of power and a six-piece accessory kit. The price of the expensive one is, $200, supports 1,500 watts and is a 12-piece accessory kit.

Then, you notice the one for $130, offers 1000 watts and has 9 accessories. For $51 more than the cheaper option you get three more accessories and an extra 200 watts of power.

You, my friend, have just experienced the decoy effect.

This cunning pricing strategy is used by marketers to get you to switch from a cheaper option to a more profitable one.

Curious to know more about it? Let’s discuss the decoy effect in detail. 

What is the Decoy Effect or Asymmetric Dominance Effect? 

The decoy effect or attraction effect or asymmetric dominance effect is a cognitive phenomenon. In this phenomenon, consumers tend to have a specific change in preferences between two options. A third option (which is asymmetrically dominated) is also presented to them.

An option is asymmetrically dominated when it is inferior in all respects to one option. In comparison to another alternative, it is inferior in some respects and superior in others. An increasing percentage of consumers will prefer the dominating option, if an asymmetrically dominated option is present. The asymmetrically dominated option is therefore a decoy serving the purpose of increasing the preference for the dominating option.

Academics Joel Huber, John Payne and Christopher Puto first explained it in a paper presented in the 1981 conference.

How does the decoy work?

A variety of alternatives is given to consumers. They often experience an overload of choice. This phenomenon was described by psychologist Barry Schwartz as the “tyranny or paradox of choice.” Numerous behavioural experiments have demonstrated that increasing choice complexity intensifies anxiety. It also hinders the decision-making ability of the consumer. 

 To reduce this anxiety, consumers tend to simplify the procedure by choosing only a few criteria like price and quantity. They tend to consider these criteria while determining the best value for money.

Manipulating the key choices, a decoy steers the consumers in a particular direction. It provides consumers with a feeling of making a rational, informal and correct choice.

As defined by Richard Thaler and Cass Sunstein, the pioneers of “nudge theory,” the decoy effect is a form of nudging.  Not all nudging can be manipulative. According to some, even manipulative nudging can be reasonable if there are noble ends.

The nudging technique has proved to be useful in the social marketing field to encourage people to make remarkable decisions such as eating healthier or becoming organ donors. 

The most famous example of the decoy effect

Let’s look at the most famous example of The Economist, and their decoy pricing model.

The Economist provided three options for their subscribers. These are – a digital subscription, a print subscription, and a print + digital subscription. It somewhat looked like this: 

Usually, most consumers would choose the third option. If you can avail the print as well as a digital edition for $130, why will you only avail only the print option for the same price?

But, you must remember that those associated with The Economist are not stupid. They are savvy. They know they are giving a dumb offer of two unequal options at the same price.

They also know what decoy is going to do. It’s going to focus on the awesomeness of the third option.

But taking away the decoy, what do you gain?

Consumers have options to choose from subscriptions with a huge price disparity. The $67 edition is inexpensive, but the content is the same. So, the consumers decide to pay $67 instead of $125.

This is the power of decoy. Even today, The Economist pricing page still uses the decoy effect to offer a subtle price. 

How marketers use the decoy effect to influence the choices of purchasers?

One should understand the ways in which a consumer chooses among alternatives to comprehend the development of effective marketing strategies.

Each product has a specific value. A consumer selects the alternative product that provides the best value. The decoy effect can affect any consumer. It can cause a purchaser to spend more than they intend to by providing a third asymmetrically dominated option. In other words, by looking at a third option, a consumer may decide to choose a more expensive item. The consumer is convinced that it is the best deal among the three options, as pricing is often based on the frame.

Let’s have a look at how the decoy effect implemented by marketers can influence the choice of the consumers:

• It pinpoints towards the product that marketers want to sell more: Suppose, a purchaser wants to buy a portable essential oil diffuser. He has three options. Option A is a simple one. Option B is a diffuser with a timer. Option C is diffuser with a timer as well as coloured lights. The marketer wants to sell Diffuser C more. So, he priced it at 40$ and the second option at $35. A purchaser will unarguably buy Option C, as it has the same price as Option B, but almost at the same price. 

• It includes three pricing options: A marketer incorporates the three pricing option to implement the decoy effect. This way, they influence the choice of a purchaser to buy the product he wants to sell more. 

• It strategically implements the three-price option: Marketers strategically implement the three pricing option to use the decoy effect. They use the decoy to make a product seem reasonably priced in comparison to others. 

• It prices the decoy close to the cost of the targeted item: The difference in the prices between the target item ($40) and the decoy ($35) is not much. It is cheaper than the jump between the least expensive option and the target item of $40. By pricing the decoy item close to the target item, they aim to sell more by influencing the choice of the purchaser. 

Decoy marketing is based on the practice of exploiting natural psychological tendencies of the purchasers. 

How to avoid falling for the decoy effect?

Marketers and psychologists unanimously agree with the fact that making a choice is hard for most human beings. When people are put in a position to choose between options, they fall prey to the decoy effect as planned by marketers. 

Let’s figure out some ways that will prevent purchasers from falling prey to the decoy effect: 

• Identify your needs and your budget. Do not be influenced or confused by the number of models or prices. 

• Conduct adequate research on a product before shopping. 

• Consider the real need of the product. Think about whether it is worth the amount you are paying. 

• Avoid decision paralysis. 

• Do not show reactance once you spot the decoy gimmicks. Refrain from buying the most expensive product just because you have the freedom of choice. 

• Do not buy the product immediately. Think, rationalise, and then buy. 

• Do not let your impulse influence your decision of purchasing a product.  

These effective ways can prevent you from falling prey to the decoy marketing strategies implemented by the marketers.  

Decoy effect is a cognitive bias that is used by marketers in product pricing. This technique is widely used in finance and in political sectors to influence the decision of people. Summarise your understandings, comprehend the principles, and realise the strategies used to have a comprehensive idea about the decoy effect. Give it a shot, implement the effect, and test its influence on the outcomes. 

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