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The decoy effect is a “trick” used by marketers to make you unintentionally go for the larger or more profitable option when you buy products.
Let’s say you went to Starbucks to get yourself a coffee. You’re given two options – Small and Large.
The $3.50 small coffee seems a lot cheaper than the $6 large one. Therefore, you’ll most likely go for the $3.50 coffee because it’s cheaper and more affordable.
Now let’s say you’re presented with a third option that falls right between the two previous options. A medium cup of coffee. This medium cup of coffee costs $5.50 and is more expensive than the $3.50 option but cheaper than the $6 option. This medium cup is also known as the ‘decoy’.
As a buyer, when you’re presented with 3 options your thinking pattern changes. The larger $6 option is suddenly a lot more appealing and the price point suddenly looks like a better deal altogether. But why? Well.. the customer is not comparing the small cup against the large cup anymore. They’re now comparing the medium cup against the larger cup. Since the difference between the large and medium is significantly small, they’re now seeing the larger option as a lot more reasonable.
“That seems like a great deal!”– Every Customer Ever
One thing you should know as a buyer or a seller is that the decoy is not intended to sell. It is simply placed to attract buyers to the more profitable option.
What Actually Happens?
I’ll explain what usually goes on in a person’s mind when the ‘decoy’ is placed.
The first thing that a person notices when a decoy is placed, is the difference in the prices. They will notice how there is a massive gap between the $3 option and the $6 option.
The second thing they will notice is how small the gap is between the medium and the large option. This will make them then compare the large gap and the small gap.
Next, they go on to think about the different benefits of the two with the smallest gap. If it’s good enough, they will go on to make the purchase decision. When it comes to small, medium, and large, our minds assume a symmetrical gap between the options. Hence, when the pricing is asymmetrical, the human brain is quick to identify the option that appears to have the best deal.
This is also known as the “attraction effect”. They will get attracted to the option with the best deal by comparing it against the decoy instead of the other option.
How To Use The Decoy Effect
When it comes to integrating the decoy effect into your marketing strategy, there is a simple five-step process that you can follow. If followed accordingly, you will have a successful business that benefits largely from the decoy effect.
Step 1: Decide on your key product
This product is the one that you hope to sell more of. It is the key product in your product line that you expect most of your sales to come from.
Step 2: Create a structure for your key product
For the key product that you chose in step 1, create a structure with the number of benefits that the customers get and decide on a price for it. Make sure that this product has a lot more benefits than the other options and price it high.
Step 3: Create the decoy
When creating the decoy, make sure that it falls between your options, and is closer to your key product. The decoy should make the key product look more worth it, by having much lesser benefits compared to the key product.
Step 4: Ensure availability of 3 to 5 options
If you don’t give enough options to your customers, the decoy effect will not work. Therefore, make sure that you have at least 3 options (including the decoy). However, make sure that you do not have over 5 options as this might overwhelm and confuse your customers.
Step 5: Price the decoy
When pricing the decoy, make sure that it is leaning more towards your key product. The price should be very close to the key products’ price. It is alright to go for a slightly lower price (or even the same price). The aim is to make the decoy look a lot more worthy.
The Decoy Effect In Digital Space
The decoy effect is used in many situations and is not limited to physical products. Many services, online and offline, nowadays make use of the decoy effect as well.
This is an example of how online businesses make use of the decoy effect to get an added advantage when it comes to making sales. They are aware that consumers will always compare the decoy against the highlighted key product. Therefore they will include many added benefits to make the key product look even better. When consumers compare, what they see is all the extra benefits that they could be getting, if they just paid an extra $2.
If the decoy didn’t exist, it would’ve been a lot harder for them to decide between the basic and the premium subscription.
Other Examples Of The Decoy Effect
Electronic goods use the decoy effect as well. For the majority of people, an electronic good is an investment that they will keep with them for a long period of time. Companies use that information to their advantage to make sure that customers definitely go for their key product instead of the other options.
When you go to watch a movie, you almost always go with a friend or a few friends, and buying popcorn is almost mandatory. People almost always choose to go for larger portions when they decide on which popcorn to get. While considering the cost of the popcorn, consumers also tend to compare the best deal available in front of them. Movie theatres make use of this information to ensure that a decoy product is almost always available to entice the customers to go for the largest portion.
In conclusion, there are many ways for the decoy effect to be used in your businesses. It’s good for consumers to be aware of these “tricks” that marketers could be using and choose wisely. If you’re creative enough, you’ll be able to integrate the decoy effect into almost anything in your life.
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