Decoy effect

Definition

The Decoy Effect, also known as the "attraction contrast" or "decision paradox," is a psychological phenomenon used primarily in sales and marketing strategies. The decoy effect states that potential buyers are led to prefer a certain product by being provided with a comparable option that appears significantly less attractive.

How it works:

1. Three options: Think of three subscription options for a magazine.
   • Online version for 5€
   • Print version for 10€
   • Combined online and print version also for €10
2. Asymmetric dominanceThe combined version (online + print for €10) clearly dominates the print version (print only for the same price). The print version serves here as a decoy to make the combined version more attractive.
3. ResultWithout the Decoy (the print-only version), many people would probably choose the cheapest option. With the Decoy, however, they are more likely to see the combined option as the "best deal" and go for it.

Marketing applications: Brands often use this effect to steer customers towards more expensive options. For example, if a moviegoer can choose between small popcorn for 3€ and large popcorn for 7€, they might choose the small size. Add a decoy in the form of a medium popcorn for 6.50€, and suddenly the large popcorn for 7€ seems like a much better deal.

Why it works: People often have difficulty judging the absolute value of things. Instead, we tend to, Relative to compare. If a product is advantageous compared to a similar but less appealing product (the Decoy), we prefer it.

Advantages

1. Conversion rate increase: Through the decoy effect, companies can increase the likelihood that customers will choose the "desired" option, which can ultimately increase conversion rates.
2. More revenue per customer: When the lure is properly placed, customers tend to choose a more expensive product or package, which increases the average revenue per customer.
3. Value perception: The decoy effect can help your products or services be perceived as more valuable, especially when compared to the decoy.
4. Simple implementation: It usually doesn't take much effort to insert a decoy into existing pricing structures. This makes this tactic relatively cost effective.
5. Flexibility: The Decoy Effect is applicable in many industries and contexts, from subscription services to physical products.

Disadvantages

1. Complexity for the customer: Too many options, especially with a decoy, can make decision making more complicated for the customer, which can lead to decision paralysis.
2. Credibility risk: If customers recognize the bait as such, it could be perceived as a manipulation attempt, which can damage the brand image.
3. Cannibalization: Implemented incorrectly, a decoy can cause customers to switch from what should be a more profitable product to a less profitable one.
4. Data Analysis: The effectiveness of a decoy can be difficult to measure. Without clear data, it could be difficult to determine if the decoy is actually effective or not.
5. Resources required for continuity: Trends and preferences change. Therefore, Decoy may need to be reviewed and adjusted regularly, which requires additional resources.

In short, the Decoy Effect can be a super effective marketing tactic, but you should use it wisely and always keep the context and your target audience in mind. It's worth testing out this approach and carefully analyzing the results to make sure it does more good than harm.

Use cases

The decoy effect is a fascinating psychological tactic used in many marketing strategies. Essentially, it is a "decoy" or "distraction offer" designed to make the actual target product seem more attractive. In short, you add a third, less attractive option to make it easier to choose between the two original options.

Example 1: Movie tickets

Suppose there are two types of movie tickets:

• Normal ticket for 10 euros
• Premium ticket with free drinks and comfortable seats for 20 euros

Now the cinema adds a third option:

• Normal ticket without popcorn for 9 euros

Suddenly, the normal ticket for 10 euros with popcorn looks like a much better deal, and people are more willing to buy it, even though they might have originally only considered the premium ticket.

Example 2: Magazine subscriptions

A well-known example is the offer for the "Economist" subscription:

• Online access for 59 euros
• Print edition for 125 euros
• Online and print for 125 euros

The print offer alone serves as a decoy here to make the combined online and print offer seem more attractive for the same price.

Example 3: Telephone tariffs

Suppose a provider offers two cell phone contracts:

• Basic package with 2 GB data for 10 euros
• Premium package with 10 GB data and flat rate for 30 euros

The provider then adds a "middle package":

• Medium package with 4 GB data for 25 euros

Now the Premium package seems like a bargain, since it offers so many additional benefits for only 5 euros more.

Example 4: Restaurant menu

One restaurant has two steak options:

• A 300g steak for 20 euros
• A 500g steak for 35 euros

Then they add a third steak:

• A 400g steak for 33 euros

Now the 500g steak seems like a much better deal because it's only 2 euros more expensive than the 400g steak, but offers 100g more meat.

Example 5: Wine list

One restaurant offers three types of wine:

• Cheap wine for 20 euros
• Middle class wine for 50 euros
• Premium wine for 100 euros

If they add a fourth wine for 90 euros that is not as good as the premium wine, it makes the premium wine more attractive because it is much better for only 10 euros more.

The great thing about the Decoy Effect is that it works on so many levels and in so many industries. It helps gently steer the customer in the direction the company wants them to go, without the customer feeling like they're being manipulated. A clever tool, if you ask me!

Conclusion

The Decoy Effect can be a very powerful tool to influence customers' decisions. It can help companies sell more products or services by giving potential buyers a clearer decision. However, using the Decoy Effect can also drive customers to make a rash decision that they later regret. For this reason, it is important to implement the Decoy Effect correctly.