If you have ever encountered three drink sizes offered by a coffee shop or supermarket, that is an application of the decoy effect.
The decoy effect is one of the marketing strategies used to increase the sales of a product.
Price is the most complicated marketing element. Therefore, to determine it, many considerations are needed, and the decoy effect is one of the strategies used for this purpose.
What is the Decoy Effect?
As quoted by The Decision Lab, the decoy effect is a pricing strategy used by adding a third, less attractive option as bait to influence the buyer’s perception of the main option.
One instance of implementing the decoy effect can be seen in the following scenario:
Company A offers beverages in two sizes – small and large, with the respective prices:
This pricing strategy allows customers to easily compare and select the option that best suits their needs or budget.
However, the company decides to apply the decoy effect by introducing a third option – medium, as a lure.
Thus, the beverage options now include:
By adding a third option with a price that appears to be reasonable, the company creates the decoy effect.
Initially, customers may have a tendency to select the small option, but the presence of the decoy option can potentially influence their decision-making process.
How to use the Decoy Effect in business?
To effectively use the decoy effect in your business, it’s important to consider more than just prices. The decision could also involve factors like quality versus convenience.
The ultimate goal of a decoy is to create the perception that your target product is a good deal. This can be achieved by changing the relative value of different parameters (e.g. cost versus layover time for a plane ticket) or by offering more for less (e.g. different sizes of perfume).
Here’s a quick guide to creating a decoy:
- Choose your target product or service, ensuring that it’s something your customers already like.
- Introduce a decoy that offers less for the same or almost the same price. The decoy should be a very bad deal in comparison to the target.
However, it’s important not to make the decoy too unappealing, as you still want to make the price of the target product favorable. You can make the decoy less attractive by changing a different feature, such as the color.
- Ensure that the third option you offer is distinct from the target and decoy and provides a clear customer comparison point.
Apply Decoy Effect to Your Marketing Strategy
This strategy is commonly used in pricing, where a third option is added to make the target product appear more appealing.
Though to effectively use the decoy effect in the business, it’s important to consider factors beyond price, such as quality versus convenience, and to ensure that the third option is distinct from the target and decoy while providing a clear comparison point for customers.
If you’re unsure of how to apply Decoy Effect to your marketing strategy, CVI will be happy to offer consultation to help you.