What is Decoy Effect?
ELI5 — The Simple Version
Imagine you're at an ice cream shop choosing between three cone sizes: small for $3, medium for $6.50, and large for $7. The large cone suddenly seems like the best deal because it's just a little more than the medium. That's the decoy effect! The shop uses the medium size as a trick to make the large size look like a better choice. You might not have thought about getting the large one before, but now it seems like a smarter buy. This is how businesses can gently steer you towards spending more by setting up choices that guide you without you noticing!
Technical Deep Dive
Definition
The Decoy Effect is a cognitive bias where adding an extra option (the decoy) makes one of the original options more appealing. Businesses use this in pricing strategies to influence customer decisions.
How It Works
- 1.Present three options: two main options and a decoy.
- 2.The decoy is priced to make one of the main options look more attractive.
- 3.Consumers are subtly persuaded to pick the option that seems like a better deal compared to the decoy.
Key Characteristics
- Asymmetric dominance: The decoy is less attractive than one of the other options, highlighting the value of the target option.
- Perceptual shift: The decoy changes how the other options are viewed.
- Enhanced perceived value: The target option appears more valuable.
Comparison
| Concept | Description | Key Difference |
|---|---|---|
| Decoy Effect | Uses a third option to influence choice | Focuses on asymmetrical dominance |
| Anchoring | Relies on initial information to influence decision | Uses first impression pricing |
| Loss Aversion | Preference to avoid losses over acquiring gains | Focuses on potential losses |
Real-World Example
In a study by Dan Ariely, participants chose between three subscription plans for The Economist: online-only for $59, print-only for $125, and print-and-online for $125. The print-only option acted as a decoy, making the print-and-online option more appealing and increasing its selection rate significantly.
Best Practices
- Use tools like Google Optimize or Optimizely to A/B test pricing models.
- Ensure the decoy option is clearly inferior to emphasize the target option's value.
- Continuously analyze consumer behavior data to adjust pricing strategies.
Common Misconceptions
- 1.The decoy effect influences everyone: Not all consumers are swayed by decoy pricing; individual choices vary.
- 2.It's deceptive: It's a strategy to highlight value, not to trick customers.
- 3.More options always boost sales: Too many choices can confuse customers, reducing conversions.