Imagine you’re at the movies buying popcorn. You see the options: small for $5, medium for $7, and large for $7.75. You’re probably thinking the large is a better deal, even if you originally only wanted a small. This is a classic example of the decoy effect – a popular marketing tool used to sway consumers’ purchasing decisions by introducing a third option that makes one of the original choices more appealing.
What is the Decoy Effect?
The decoy effect works by positioning a “decoy” option that steers customers toward a higher value choice. In the example I gave you above, the theatre aims to sell the large popcorn option, with the small as a secondary option. However, the $2.75 difference between the small and the large might deter customers towards sticking with the small. Thus, the theatre introduces a decoy option – the medium- and prices it close to the large option. Now the large seems to be the better option at only 75 cents more than the medium. As a result, more consumers are likely to choose the large popcorn, increasing the average spend per customer for the theatre.
But why does this phenomenon work? Let’s look at the psychology behind what makes this an effective marketing tool for boosting sales.
Why Does the Decoy Effect Work?
The decoy effect works because it plays on consumers’ perceived value– which taps into the sense that one option offers more value for only a slight price increase. When customers see a middle, less attractive option (the decoy), they naturally compare it to the higher priced choice, making the top option seem like a much better deal in contrast.
This effect also reduces decision paralysis by simplifying the evaluation process. Instead of weighing endless factors, customers are encouraged to focus on value comparisons between just a few options. By providing a decoy, businesses can nudge customers towards a specific choice without them feeling pressured. Instead, customers feel like they’re opting for the best deal and can justify spending more for what appears to be a significantly greater value.
How the Decoy Effect Boosts Sales
Businesses can use the decoy effect to increase revenue. When used strategically, the decoy effect can:
- Increase average spend per customer: By making the more expensive option appear as the better deal, customers feel more inclined to opt for the higher price point, boosting overall sales.
- Enhance customer satisfaction: If customers feel they’ve gotten a good deal, it can lead to a greater sense of satisfaction with the purchase and thus increase their likelihood to return in the future.
- Streamlines consumer decision-making: Too many options can lead to decision paralysis. With the decoy effect, businesses make the decision process smoother as a more appealing option is directly laid out to consumers with the added pressure. This can led to quicker purchases and reduces buyer hesitance or abandoned shopping carts.
How to Effectively Use the Decoy Effect?
To make the decoy effect work for your business, structure your offers in a way that makes the highest-value choice the most appealing. Considering adding a middle-tier, “decoy” option that emphasizes the benefits of the higher-tier choice while still offering a lower-priced entry-level choice. This will naturally highlight the higher option as the best deal and push customers towards purchasing it.
However, while the decoy effect can be a powerful tool for influencing consumer behaviour, it’s important not to overuse this strategy. Excessive reliance on decoys can lead to consumers recognizing a pattern, thus impacting their trust towards your brand and its pricing structure.
To effectively use the decoy effect, use it sparingly and thoughtfully. Reserve it for key products or promotions where you want to highlight a specific choice in a way that feels genuine. By strategically implementing this strategy you can enhance customer experience and drive sales without compromising on integrity.
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