{"id":140,"date":"2024-01-28T21:50:18","date_gmt":"2024-01-29T05:50:18","guid":{"rendered":"https:\/\/rezascave.com\/blog\/?p=140"},"modified":"2024-02-16T09:39:11","modified_gmt":"2024-02-16T17:39:11","slug":"the-decoy-effect","status":"publish","type":"post","link":"https:\/\/rezascave.com\/blog\/the-decoy-effect\/","title":{"rendered":"The Decoy Effect"},"content":{"rendered":"\n

he Decoy Effect is the phenomenon whereby adding a third pricing option makes the consumer change their preference towards an option the seller is trying to promote. The \u201cdecoy\u201d is priced to make one of the other options much more attractive.<\/p>\n\n\n\n


It\u2019s also called \u201casymmetric dominance effect\u201d.<\/p>\n\n\n\n


This is what you usually experience when you buy popcorn at the cinema or latte at Starbucks. The price difference between Medium and Large sizes is so little that you\u2019d automatically opt-in for the larger option, unless you\u2019re choosing the Small one for a specific reason (e.g. you like your coffee less milky)<\/p>\n\n\n\n

\"decoy<\/figure>\n\n\n\n

The Decoy Effect is a cognitive bias that\u2019s often used when working on a pricing strategy, but also in politics, finance, insurance and pension plans, PR, and other areas. It almost always works, but the catch is \u2013 can you execute it smart enough so it attracts customers and still pushes your economics north.<\/p>\n\n\n\n\n\n\n\n


Research proving that the Decoy Effect works<\/h2>\n\n\n\n

A few years ago MIT Professor Dan Ariely ran an experiment with his students asking them to choose a subscription plan for The Economist.<\/p>\n\n\n\n


There were three subscription options:<\/p>\n\n\n\n

1) web only $59;<\/p>\n\n\n\n

2) print only $125,<\/p>\n\n\n\n

3) web + print $125<\/p>\n\n\n\n


When presented with only options 1) and 2), 68% of people chose the cheapest option. When presented with the 3 options, 84% of the students went for option 3).<\/p>\n\n\n\n

\"decoy<\/figure>\n\n\n\n

2 options delivered $8,012 of revenue
3 options delivered $11,444 of revenue<\/p>\n\n\n\n


This is an increase of 43%, not bad, for adding an option that didn\u2019t add a single hour of extra work.<\/strong><\/p>\n\n\n\n


The method has also been tested with high-profile investors by Brittany Paris from the University of New Hampshire. Her study, which included a number of surveys with strategically plugged decoys, concluded that even investors that are expected to act rationally were successfully influenced by the phenomenon. They were offered stock options to choose from and including a decoy, as a third option, successfully persuaded them to choose the option the company\/founders wanted them to. You can see the full study here.<\/p>\n\n\n\n


Why does it work?<\/h2>\n\n\n\n

Psychologically the Decoy Effect rules out the least attractive option and makes the third option more appealing. It gives users confidence that they\u2019re making a smart choice and they\u2019re getting good value for their money. Even though many of the students from the experiment above might have needed just the online version, they were tempted to get a print version, as well, because it was of unmissable value.<\/p>\n\n\n\n


How to use the Decoy Effect for your business?<\/h2>\n\n\n\n

Just having 3 pricing options is not a strategic use of the Decoy Effect. For it to work, one of the options must be asymmetrically dominated by the \u201cwinner\u201d option. You should introduce a \u201cdecoy\u201d \u2013 a new, unattractive option that\u2019s subconsciously ruled out because it\u2019s of disproportionally worse value than the rest. It\u2019s usually meant to make the most expensive option look super appealing, but not only.<\/p>\n\n\n\n


If you\u2019re interested in using the Decoy Effect in your pricing strategy, first it\u2019s really important if your business model allows it. It could successfully work for:<\/p>\n\n\n\n