What is the Decoy Effect?
The Decoy Effect is more present in our lives than we would generally imagine. Whether you go to a movie theater, supermarket or even to an iPhone store, the Decoy Effect will have a prominent presence. So, what really is the Decoy Effect and why is the Decoy Effect a significant concept in marketing and sales? Before getting into that, let’s see what a “decoy” means.
The Decoy Effect was founded by a few academics in a paper presented in 1981, Joel Huber, John Payne and Christopher Puto, the researchers asked participants to choose from a few presented scenarios.
What is a Decoy?
A Decoy in this context is used to break the competition between two products by introducing a “less attractive” option. For example, the soda sold at fast food chains has a strong presence of the Decoy Effect. If size small is Rs. 120 ($1) and the large cup is Rs. 200 ($4) a third option is introduced which is the Medium for Rs.180 ($3.5). The basic purpose of the medium soda cup is that it breaks the significant competition between the small soda cup and the large. The medium cup is the “Decoy” in this situation.
Decoy Effect Explained
The Decoy Effect is a cognitive bias that occurs when the introduction of a third, less attractive option, the decoy influences the buyer’s preference between two other options. This decoy is designed to make the actual options, or the target appear more appealing compared to the other option.
Decoy Effect Example
Let’s say you are choosing between two smart phones:
Option 01: Affordable smartphone with fewer features
Option 02: Expensive with better and higher features
This decision will initially be hard. Now imagine that there was a third option introduced:
Option 03 (Decoy): Cost higher than Option 02 but does not offer good or better features
With the introduction of Option 03 you are most likely to opt for the more expensive phone because it seems like the better deal. It seems like it is worth the price compared to the decoy which is Option 3.
This effect affects the buyer’s perception of value and tempts buyers toward a specific choice.
Some companies that take advantage of the Decoy Effect are Apple, Starbucks, etc.
Apple VS Starbucks: Utilizing the Decoy Effect
Apple's iPhone Pricing
- iPhone 15 (648GB) - $699
A standard option with basic storage.
- iPhone 15 Pro (128GB) - $999
A premium option with more features and better storage.
- iPhone 15 Pro Max (128GB) - $1,099
| Model | Description | Price |
|---|---|---|
| iPhone 15 (64GB) | A standard option with basic storage. | $699 |
| iPhone 15 Pro (128GB) | A premium option with more features and better storage. | $999 |
| iPhone 15 Pro Max (128GB) | The top-tier option with superior features. | $1,099 |
This is the decoy, only a $100 difference compared to the iPhone 15 Pro, but with a little additional benefit over it.
Effect: With the introduction of the iPhone 15 Pro Max, the iPhone 15 Pro seems like the better deal for a luxury product. The Pro Max option is too similar to the Pro option for the added $100 which tempts buyers to view the Pro option as the better value option.
Starbucks Coffee Sizes
- Tall Coffee (12oz) - $2.95
The least expensive and the smallest size.
- Grande Coffee (16oz) - $3.65
A slightly larger size and more expensive.
- Venti Coffee (20oz) - $3.95
| Size | Description | Price |
|---|---|---|
| Tall Coffee (12oz) | The least expensive and the smallest size. | $2.95 |
| Grande Coffee (16oz) | A slightly larger size and more expensive. | $3.65 |
| Venti Coffee (20oz) | The largest size available. | $3.95 |
This is the decoy with just 4oz more than the Grande for only 30 cents more.
Effect: The Venti Coffee serves as a decoy here. The Grande seems to be the better deal compared to the Venti Coffee as it offers a good balance of price and size. Creating the worth-for-price mindset. Consumers are nudged to choose the Grande rather than the cheaper Tall option.
How to Put the Decoy Effect in Use
- Pick a target option
The “Target Option” here refers to the option you want consumers to pick. The ground rules to the target option are that it must be the more beneficial product/ service, it should be priced higher/ have a higher margin.
Note: For the Decoy Effect to work in your pricing strategy/ marketing strategy, the product must already be liked by the consumers or be a market fit.
- Introduce a subtle decoy
It is important that the decoy offers less for almost the same. Meaning the decoy should not look like a worth-for-money option. Make sure that the Decoy is priced very closely to the Target Option.
- Have three options
You must have at least 3 options for the Decoy Effect to work.
Bad Practices in the Decoy Effect
There are a few factors that might lead the Decoy Effect to fail, it is important these mistakes in Decoy Effect do not take place when implementing.
- Having a lot options; while having a lot of choices may seem like a good thing it actually negatively impacts the implemented Decoy Effect. Having more than 3 options would create a “Choice Overload” which can lead to decision paralysis.
- Offered product/ service is not in demand, the Decoy Effect is not a miracle worker therefore, if the product/ service is not in demand or is not liked by the target market, the target option might not generate sales. In that case, doing more research and improving the product along with great marketing is recommended.
- Too high pricing or too low price, when implementing the Decoy Effect it is important to find the right balance between too high, worth the price and too low. This goes for all options offered.
Conclusion
The Decoy Effect is a powerful marketing strategy that subtly influences consumer decisions. This is done by introducing a third, less attractive option. By creating a perceived “better value” choice, companies like Apple and Starbucks use the decoy to tempt consumers towards the “target option” The Decoy Effect aids in increasing sales if executed properly. It is important to avoid overwhelming the buyer or offering unattractive options, thus this strategy must be executed carefully.
People Also Ask
The Decoy Effect guides customers towards a specific choice by introducing less attractive options. This makes the target option appear more valuable.
Two large companies that employ the Decoy Effect are Apple and Starbucks. You can also see a heavy use of the Decoy Effect in popcorn stands, fast food chain beverages, etc.
As it enhances the perceived value of an intended product/service, it thereby increases sales and aids in gaining a competitive edge in the market.
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