The Decoy Effect - How Businesses Are Tricking Your Mind

The Decoy Effect has been used across digital marketing and eCommerce websites for years. It's a cognitive bias that you can use in your product pricing, in finance and even in politics to influence decision making and consumer behaviour.

We don't use it here at Kesseler as we don't operate that sort of pricing structure in our kitchen showrooms.

However, it's such an interesting everyday phenomenon that I wanted to share it.

You'll find that you're seeing it everywhere on a variety of ecommerce websites. And in many cases, you're falling for it because your brain tells you that you're making the obvious decision.

The brain does this all the time. Ever notice that when you buy something or are actively thinking about buying something, you find that you see it all the time?

This is known as the Baader-Meinhof phenomenon, otherwise known as frequency illusion.

A couple of things happen when the Baader-Meinhof phenomenon kicks in. One, your brain seems to be excited by the fact that you've learned something new, and selective attention occurs.

Your brain subconsciously thinks, "Hey, that's awesome! I'm going to look for that thing without actually thinking about it."

So now that you're looking for it, you find it.

To make it all the more powerful, confirmation bias occurs after seeing it even once or twice. In other words, you start agreeing with yourself that, yup, you're definitely seeing it more. Your brain is justifying it's own decision-making.

So, what is the Decoy Effect?

Simply, it's a phenomenon whereby consumers will tend to have a specific change in their preferences between two otions when also presented with a third option that is asymmetrically dominated.

In essence, the third option looks so expensive/bad value that the previously disregarded second option suddenly is much more appealing and appears to be better value.

Let's look at a real-world example of something that many consider overpriced: cinema popcorn.

National Geographic ran an experiment to test how the decoy effect influences consumers to buy a large popcorn rather than a small or medium one.

To begin with, they offerd the first group of consumers a choice:

• Small popcorn for ￡3
• Large popcorn for ￡7

The result revealed that most of the consumers chose the small option, due to their personal needs at that time.

For the second group, they decided to offer three options:

• Small popcorn for ￡3
• Medium popcorn for ￡6.50
• Large popcorn for ￡7

This time, most of the consumers chose the large option because they saw value in more popcorn for only 50p extra. The medium option was asymetrically dominated by the large option.

In other words, the Decoy Effect encouraged the consumers to go for the expensive option.

Look out for it next time you're at a cinema, or even a Starbucks (they're really good at it!).

Online Example - Nutribullet

This is taken from an article in The Conversation with this fantastic example for the Nutribullet.

Imagine you're shopping for the Nutribullet blender. You see two options; a cheaper one at $89 promoting 900 watts of power and a 5-piece accessory kit. The more expensive one, at $149, is 1200 watts and has 12 accessories.

The one that you choose will depend on an assessment of their relative value for money. It's not immediately obvious though that the more expensive option is better value. It's slightly less than 35% more powerful but costs almost 70% more. It has more than twice the number of plastic accessories... but are they worth it? Will you use them all? Could you buy the ones you want individually?

Now consider these in light of a third option:

This one, at $125, offers 1000 watts and 9 accessories. It enables you to make what feels like a more considered comparison, right?

For $36 more than the cheaper option, you get four more accessories and an extra 100 watts of power.

But if you spend only $24 extra again, you get a further three accessories and 200 watts more power. Bargain! Right? ..... right?!?!

Online Example - The Economist

As mentioned earlier, we see this online everyday. The Economist magazine experiments with its pricing structure quite often and implements the decoy effect in order to increase profitability.

The magazine offers three subscription options; print, digital and print + digital.

Dan Ariely, a professor at MIT and author of the fantastic book 'Predictably Irrational', tested one of the Economists pricing structures a few years ago with 100 of hisstudents.

In order to test the decoy effect, Mr Ariely asked his students to choose between two offers:

• Digital - $59
• Print & Digital - $125

The results showed that 68% chose the cheaper digital subscription and 32% chose the combo subscription - total revenue would be $8012.

When Mr Ariely gave his students all three options, the result changed dramatically.

84% of his students chose the combo subscription, 16% chose digital and none of them chose print. Total revenue would be $11,444.

By adding the decoy effect, The Economist improved sales by 43%.

When you scale this up to the subscription levels they do recieve, this is a huge jump in profitability for the company.

Online Example - Shutterstock

Image website Shutterstock uses the decoy effect too in its pricing structure, as seen below:

The monthly packages include 10 images for ￡19, 50 images for ￡59, 350 images for ￡99 and 750 images for ￡119.

Logic would make you think they're missing a trick not offering something around the 150-200 images mark. But no, there's a deliberately enormous gap between the 50 and 350.

If you need more than 50 images per month, the 350 images package seems unreasonable when for a bit more (just ￡20) you can have an enormous 750 images, more than twice as many.

In this example, the 350 images package is asymmetrically dominated by the 750 images package. For this reason, the decoy effect increases the likelihood of choosing the higher priced package. And because Shutterstock know most of the subscribers won't use anywhere near that many images, their profitability per image increases hugely.

How can I use the Decoy Effect?

Follow the five simple steps to add the decoy effect to your price offering:

1. Choose your key product - the one you want to sell more of.
2. Structure your key product - remember, this should contain more visible benefits than the other products, at a higher price.
3. Create a decoy - your goal is to make the decoy asymmetrically dominated by your key product and to increase its attractiveness as a result.
4. Have at least 3 offers - but don't go crazy and have more than 5, or you're at risk of exposing yourself to the choice overload bias.
5. Price the decoy close to your key product - Choose the same or a slightly lower price.

Conclusion

In conclusion, the decoy effect is a scientifically proven method to exploit the human brain's desire for both logical choice and justifying it's own decisions.

It can be used across many businesses and industries, but works particularly well in the ecommerce or subscription-model environments.

Let me know your thoughts.