Humans make decisions based on the perception of their choices. When we’re deciding between two things and a third is offered as an outlier, our decision changes. It sounds weird, right? It is. Weird, but true. The decoy effect (or asymmetric dominance) refers to our tendency to change preference between two options when presented with an unattractive third option. When used for commercial purpose it is called decoy marketing.
The decoy effect (also known as asymmetric dominance) can be used to change the decision-making process of consumers and make them more interested in purchasing from you. For example, a study found that when people were given two options for buying a car: one with air conditioning and one without it, most people chose the latter because they felt like they could save money by opting out of the optional feature. However, when presented with three options: one with AC; one without; another car with slightly different features that costs less than either option but still has all necessary components (like safety systems), majority chose this third option rather than either other choice.
The 7 steps
Decoy marketing increases the perceived value of your product or service by adding more than one version. You could offer a low-end version of your product as well as an upgraded version. Or you could offer both a standard and premium version of something. When customers are comparing options, they tend to view the items in relation to each other — meaning that if one option is high quality and expensive, then those traits must also apply to the cheaper option that looks like it’s worth their money too.
- Determine a product that you want to sell more for example a large sized milkshake (contains 500 ml).
- Find two other products that you want to offer as an option next to this. This is a small milkshake (contains 100 ml) and a medium milkshake (contains 250 ml).
- Determine the pricing of the three products bearing in mind that you want to sell more of the large milkshake.
- First set the price you want to ask for the large milkshake, the product you want to sell more. For example: 7 EUR
- Now set the price for the small milkshake which should be the cheapest, because it is the smallest size. But don’t make it to cheap, because that will lead to more sales of this product. So price it a little expensive but cheaper than the option medium and large. For example: 3 EUR.
If you only had the small and large size to sell now everyone would by the large size. So mission accomplished, but we have another size the medium one.
- Now we will set the price for the third size. This is half the size of the large milkshake. We know the logical price would be 3,5 EUR. But we want to sell more large milkshakes. In this case we will increase the price of the medium size to 6 EUR.
Now the small size makes no sense because I would have to pay two times 3 EUR for 200 ml. The medium size is 250 ml for 6 EUR, so I am receiving more for the same price. But If I look at the large option, I will get the double size for only 7 EUR. So at this point when I am deciding as a consumer to buy a milkshake I will tend to buy the large option. It seems likes the best value for money option from the three.
- Make sure you have enough stock because you are going to sell a lot.