The Decoy Effect: Why your shopping choices are irrational

What is Decoy Effect?

The decoy effect in marketing can be defined as a phenomenon whereby consumer choices between any two products are influenced when a third product, the ‘decoy’ is introduced.

This third product is ‘asymmetrically dominated’ option to influence a consumer’s choice.

This decoy is priced in a way that it completely rejects one of the options under consideration, and makes your choice much clearer for the other option.

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Decoy Effect pricing example:

The decoy effect at Starbucks is one of the best examples to understand this phenomenon better.

I am referring to their cup sizes, these are priced conveniently so that, psychologically the consumers are willing to buy, what benefits the company the most.

Let’s look at the image below:

Also read: Behavioral Targeting: How Marketers make you feel special

Price is the most important element when it comes to the marketing mix.

It’s quite likely that a person would opt for a grande because Hey! You get more coffee by just paying Rs.50 more.

Can you guess the decoy here? Yes, that’s right, it’s the Tall option.

Decoy effect from Consumer’s point of view

How does the decoy effect work?

In everyday life, consumers come across a plethora of choices, however, we almost always narrow it down to a few.

Now does the decoy work when there are only two options?

No, it doesn’t because you can clearly decide the better option by comparing various parameters.

It’s only when a third option is introduced, you start thinking in a different direction because the decoy nudges you to do so.

How a decoy influences consumers?

1. A decoy changes the parameters on which consumers judge a product

In the first-ever research study conducted to analyze a decoy effect, it was clear that consumers end up choosing products faster when a decoy is introduced.

Another noteworthy point is that decoy changes the focus of consumers from specific attributes.

Let’s look at an example if you are buying a pen drive.

You are looking at the one which has maximum storage space.

You come across two options

Since your focus at this point is maximum storage, you will choose option B.

Now, let me introduce a decoy here

Now, obviously, your choice shifts- the parameter on which you pick a brand, change from storage to price.

Because you are getting the same 128gb data at a lesser cost.

2. A decoy helps in justifying your purchase decision

We might be the smartest, the brightest but that doesn’t stop us from falling into the trap of a decoy.

In fact the more rational you think you are, the more irrational purchase you might end up with.

And, this is not specific to you.

It’s human nature, when we are making a choice, the goal is not to make the right decision.

In fact, the goal is to justify the outcome of your decision.

You don’t wish to be wrong, hence you require reasons to justify your purchases with the help of comparisons.

Also read: What are Buyer Personas and how can your business use them?

How can consumers avoid a decoy?

1. Beware if you are a comparison shopper

If you are the kind who looks out for coupons, discounts, or research products before you buy, you are more likely to fall for a decoy.

Ensure the comparisons are made keeping in mind the decoy effect.

2. Products sold in sets of three are the ones to watch out for

This is because the number three is optimal for choices.

It’s not too many for you to get confused, and not too little for you to feel like you don’t have enough to choose from.

Decoy’s work the best when it’s three products to choose from, if the comparison is between 2 or 4 products, it just doesn’t have that big an impact.

3. Calculate the cost per unit

While this might seem a big task, for something that won’t cost you a lot.

You must consider doing this for higher-priced products.

Whenever you come across a price discrepancy or an asymmetric relationship, its most likely a decoy.

Decoy effect from marketer’s point of view

How to use the decoy effect?

From the marketer’s point of view, it’s important to note how can you use the decoy effect.

Understand that the decoy works best when you have three choices, concerning the following categories:

1. Target- This is your product, the one you want the consumers to choose

2. Competitor- The product which is competing with your target

3. Decoy- The product, which when introduced, changes your consumer’s perception and makes him/her choose the target.

It’s extremely important to note, that consumers are evolving.

They are no longer easily influenced by your offering.

So if as a marketer, you put your decoy out there openly, it’s very much possible that consumers will not fall for it.

It has to be placed very strategically keeping in mind the target and the competitor.

Brand Examples

One of the examples explained in the post is that of Starbucks.

Here are a few others where the decoy effect plays a major role:

1. Netflix subscription

Just pay a little more and get more benefits, why would you settle for a 649 plan then?

2. McDonald’s

Oh the number of times, I am asked to pick a meal instead of buying things separately! ‘Madam, agar aapne Rs. 30 aur dala toh meal banjayega’.

And, I am not blaming you, if you opt for a meal then.

But imagine a Rs. 30 increase for every customer, is eventually adding up to a lot!

The decoy works brilliantly for them

3. Airtel

Go back in time, where 1gb a month was all you needed.

Today, even a 1.5gb data per day doesn’t seem enough.

Telecom brands have realized this need, hence they come up with data plans that benefit them the most, but are portrayed as the perfect ones for you!

To conclude a decoy effect in marketing works really well especially if you have three options to compare. And, precisely why as a marketer we should definitely explore using this tactic to ensure maximum conversion.