Suppose you visit a movie theatre and buy popcorn. You plan on getting a medium tub. When you reach the counter, you see that the small costs Rs. 300, the medium costs Rs. 450 while the large one costs Rs. 500. Even though you planned on buying the medium one, it is quite likely that you’ll ultimately choose the large one because it seems like a better deal.
And this is how you’ve fallen prey to the decoy effect. Such pricing strategies are used frequently by fast food companies and it helps them make large amounts of profit.
The decoy effect is a cognitive bias wherein an unattractive or more expensive option is added to make another option look more favourable. It causes us to spend and consume more than we actually need.
An informal experiment was conducted by the National Geographic
When the participants were given only two options- large popcorn or small, very few purchased the large one. Once the medium tub was added as a decoy, most of the people bought the large one. This is because the large one is only slightly more expensive than the medium but contains more popcorn, making it less expensive per unit.
Thus, when presented with a third option, which is the decoy, the preference between the previous two options changes. This is because the decoy is asymmetrically dominated.
In our example, the price of the decoy is Rs. 150 more than the small but just Rs. 50 less than the large- it is asymmetrically dominated, steering you to see that the large tub of popcorn provides the best value for money. The decoy is always priced really close to the most expensive option.
When consumers are presented with manifold choices, they experience a paradox of choice. The decoy nudges the consumers to choose that item that makes them feel like they’ve made a rational choice.
Price is the most sensitive element of marketing mix. The decoy effect is a cunning marketing strategy, commonly used, to nudge consumers to purchase a more expensive option.
Decoy effect can also be used in non-price related instances.
For example, you want to organize a campus ambassador program. You want maximum participation and also get the maximum registrations through the participants for the event. Here you can use the decoy effect by giving the participants three options:
A- get 10 registrations in exchange for a certificate of participation
B- get 20 registrations in exchange for a certificate of participation + a letter of recommendation
C- get 25 registrations in exchange for a certificate of participation + a letter of recommendation + freebies
Looking at these options it is obvious that all participants will try their best to get at least 25 registrations!
There are numerous examples of the decoy effect in every walk of life and in every field. It is a very powerful nudge that influences our decisions without us knowing that it has altered our preference.
What’s one instance where you spent more than you intended to? Tell me about your experience with the decoy effect in the comments!