Decoy effect

What is the Decoy Effect?

The Decoy Effect is a psychological phenomenon that occurs when we are presented with two options and a third, less attractive option is added to influence our decision-making. This third option, called the decoy, is usually priced similarly to one of the other options, but with lower quality or fewer features.

For example, imagine you're shopping for a new phone and you're deciding between two models: a basic model for $300 and a premium model for $800. You're not sure which one to choose, but then you see a third option, a slightly better model for $600. This third option is the decoy, and it's designed to make the premium model seem like a better value by comparison.

The Decoy Effect works because it alters our perception of the original two options. The decoy option makes one of the other options look more appealing, even if it's not objectively the best choice. In the example above, the decoy option makes the premium model seem like a better value, even though it's still more expensive than the basic model.

Businesses can use the Decoy Effect to influence consumer behavior and increase sales. By strategically adding a decoy option, they can steer customers towards a particular product or service. However, it's important to use the Decoy Effect ethically and not mislead customers into making a purchase they may regret.

It's worth noting that the Decoy Effect is just one of many psychological principles that businesses use to influence consumer behavior. Other examples include social proof, scarcity, and anchoring.

When should you use the Decoy Effect?

The Decoy Effect is a marketing strategy that involves adding a third option to influence the customer's decision-making process. This technique can be used in a wide range of situations, from bakeries selling cakes of different sizes to SaaS companies offering various subscription packages.

Let's take the example of a SaaS product that resizes images for websites. The company has a basic package for $10 per month that allows users to resize 20,000 images per month, but with limited options. The premium package costs $25 per month and offers a lot more features, but it's five times more expensive than the basic plan. Customers might hesitate to pay that much for the premium plan.

To apply the Decoy Effect, the company should introduce a "Pro" plan for $20 per month that offers 40,000 image resizes per month. This plan is priced similarly to the premium plan but with fewer features. It appears to be a second basic plan, but it's slightly more expensive and offers more image resizes. Customers will now have to rethink their options and consider if the premium plan is worth the extra cost.

The Decoy Effect is also known as the "asymmetric dominance effect" because the third option, or the decoy, is strategically designed to be more attractive than one option but inferior to another. This technique can nudge customers towards choosing the option that the company wants them to choose, in this case, the premium plan, which provides more value for the price.

Summary

In summary, the Decoy Effect can be a powerful marketing tool when used correctly. By adding a third option that influences the customer's perception of the available choices, companies can steer customers towards the product or service they want them to choose, increasing their profits in the process.