What is Decoy Effect?
The decoy effect or also known as “asymmetrical dominance effect”, is a phenomenon in which consumers change their preference between two choices when a third option is presented. This effect would lead a customer to select the most expensive product instead of the cheaper product. In other words, you should spend according to the budget that you set, but instead you have spent more due to this effect. It is a strategy often used by marketers in promoting their products effectively in the market and earning high sales at the same time.
How the Decoy Effect Works?
Let’s make this simpler for you to understand. You’re in a movie theater and you’ve been given two options for some delicious popcorn! A small popcorn bucket costs RM 3, and a large popcorn bucket costs RM 8. Of course, you want a large popcorn size, but as you intend to spend less, you would choose the cheaper option.
Now that you are more likely to choose the small popcorn bucket, what if the seller wants you to spend more on the large popcorn bucket? Well, obviously the common strategy that they would use is using the discount strategy such as 25% off for the RM8 popcorn, and now the new price would be RM 6. It may sound a bit better but the seller’s intention still wants to encourage you to spend for the large size popcorn without any discount value in order to generate more profit.
Instead of giving a discount, the seller uses the decoy effect strategy as an alternative way. In the picture above, imagine a RM 7 medium-size popcorn is added by the seller, which one is your preferred choice out of those 3 popcorn sizes? Your purchase decision will most likely change and will opt for the large size popcorn because you only need to add an extra RM 1 for it if compared to RM 7 medium-size popcorn.
Most of us would opt for the large size bucket as this now seems better value for money. Your decision may sound inaccurate due to the presence of medium-size popcorn which influences your mind. Notice that the decoy is priced (RM 7 popcorn) really close to the more expensive option, making the more expensive (RM 8 popcorn) option look significantly better. In general, you will feel stupid and regret later if you did not choose the higher-priced option!
Now, instead of pricing the medium-size bucket for RM 7, what if it is priced for RM 4? Which one would you choose now? Obviously, you would opt for the medium size popcorn bucket! Because this looks better than the small size popcorn bucket and you only need to add an extra RM 1.
From the situation given, the small size popcorn is acting as a decoy here. After understanding all this, you are probably thinking that if all of these decisions were decided by your ownself or the visual illusion created by the seller or company?
If you are a smart consumer, you probably won’t fall under this trick because you are aware of the pricing and value differences. But for a consumer that lacks awareness of this trick, they may get tricked easily and will take an irrational decision in the end.
Famous Brands That Use Decoy Strategy
This strategy is also used by well-known brands. You may have been tricked before when buying their products without thinking rationally in your buying decision. Let’s take a look at some examples of famous brands like Apple and Starbucks that use such strategies in their businesses.
Source Image: businessinsder.com
In 2019, Apple launched their 3 new iPhone models which were:
iPhone 11 at $699
iPhone 11 Pro at $999
iPhone 11 Pro Max at $1099
Source Image: GSMArena.com
If you compare the specifications of those 3 iPhone models, the features are identical and only a few slight differences such as screen sizes and battery energy storage capacity. Now, imagine if Apple’s only launched 2 models, for example only iPhone 11 and iPhone 11 Pro in the market, most of the customers would buy the cheaper option which is iPhone 11. However, a few might also purchase an iPhone 11 Pro but not in a big number.
Assume if Apple launched the iPhone 11 Pro Max as their 3rd model, now customers have 3 options to choose from. When all models are seen together, your mind starts to get confused and you start comparing iPhone 11 Pro at $999 and iPhone 11 Pro Max at $1099. All of a sudden, you notice Pro Max only needs to add an extra $100, which is a bargain price above Pro (decoy).
With this trick, customers’ minds will start to act inaccurately and end up purchasing iPhone 11 Pro Max because of the decoy presence (iPhone 11 Pro). In addition, Apple’s has been using this strategy for their previous models such as iPhone 7, 8, and X as well
Source Image: pinterest.com
If there are only two options (tall and grande) given, most customers will choose the tall option because they feel the grande is expensive. But when a third option appears, namely venti, most customers will opt for Grande but some may also opt for venti as well. The size of the cups influences the customer’s decision as they want a bigger cup, they only need to add extra few bucks.
The decoy effect is a strategy that is really successful and it can be used effectively in your pricing strategy and marketing activities. By applying them correctly, you will maximize sales by encouraging customers to select the choices that help you the most. Moreover, we as consumers should also be careful and frugal when buying goods everywhere. This is to prevent us from spending more and not be deceived by the seller/company. Make sure to think rationally in your buying decisions by comparing the price, benefits, and product descriptions.
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