Latest / Marketing Psychology with Fexingo: Behavioral Triggers, Persuasion, and Consumer Behavior / The Decoy Effect in Modern Marketing
Transcript
- Lucas: I was sitting in a theater last week, trying to decide between small and large popcorn. The small was five dollars, the large was eight dollars. And I remember thinking, that’s a three-dollar jump for maybe six ounces of corn. But then they added the medium at seven dollars. Luna: Right. So now the large looks like a steal compared to the medium, even though you still don’t really want the medium. Lucas: Exactly. That is the decoy effect in its purest form. It’s not just popcorn. It’s everywhere once you start looking. We’ve talked about anchoring and compromise effects before, but this one feels more manipulative because it changes the value proposition of the target item without changing the item itself. Luna: It feels manipulative because it exploits our inability to judge value in isolation. We only know what something is worth by comparing it to what else is there. Lucas: So let’s break down the mechanics here. In behavioral economics, this is called asymmetric dominance. You have a target option, which is the one the seller wants you to buy. Then you have a competitor, which is cheaper but less desirable. And then you introduce the decoy. Luna: The decoy has to be designed specifically to lose to the target, while beating the competitor. It can’t be good enough to tempt anyone away from the target. Lucas: Correct. In the popcorn example, the medium is the decoy. It costs seven dollars, which is close to the eight-dollar large, but it offers significantly less product. It makes the large look like a massive bargain. Meanwhile, the small at five dollars feels like a budget option, but when you compare it to the medium, the medium looks better than the small, yet the large looks even better than the medium. Luna: So the medium exists solely to make the large look irresistible. It’s a sacrificial lamb. Lucas: Precisely. And this works because consumers are lazy evaluators. We hate doing the math on unit price per ounce. We prefer heuristics. If Option A beats Option B on every dimension, we assume Option A is the rational choice. The decoy makes the target appear dominant on both price and features. Luna: But does it actually increase revenue? Or does it just shift people who were going to buy the large anyway to feel better about their purchase? Lucas: That’s the key question. Studies show it increases sales of the target item significantly. People who would have bought the small often upgrade to the large because the large suddenly seems like the smartest deal. The decoy creates a contrast that makes the target look superior, pushing up-sells. Luna: So it’s not just about feeling good. It’s actively moving the needle on average order value. Lucas: It is. And we see this in software subscriptions all the time. Look at any SaaS company with three tiers: Basic, Pro, and Enterprise. The Pro tier is usually priced so that it looks incredibly valuable compared to Basic, while the Enterprise tier is expensive and complex. But often, the Pro tier is the actual goal. Luna: Or sometimes the Enterprise tier is the decoy. If you want to sell more Pros, you might make Enterprise look ridiculously overpriced so that Pro becomes the obvious middle ground. Lucas: Yes, or if you want to sell more Enterprises, you might add a Pro tier that is just slightly underwhelming. Let’s say the Pro has all the features you need, but missing one critical integration that Enterprise has. That missing feature makes the Pro feel incomplete, nudging you toward the higher price point. Luna: It’s interesting because the decoy doesn’t have to be terrible. It just has to be inferior to the target in a way that matters to the buyer. Lucas: Right. If the decoy is too bad, people will just ignore it and go back to their original choice. It has to be plausible enough to consider, but flawed enough to reject. In the popcorn case, the medium wasn’t tiny. It was a reasonable size, just not as big as the large for barely more money. Luna: So the threshold for the decoy is narrow. It needs to be attractive enough to enter the consideration set, but unattractive enough to lose the comparison. Lucas: Exactly. And this brings us to the donation segment. If these marketing conversations have sparked something you've actually used, or if you found today’s breakdown helpful, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It keeps the research sharp and the ads out. Luna: Yeah, and it lets us keep digging into these psychological quirks without worrying about sponsor slots. Appreciate it. Lucas: Back to the data. There’s a famous study from Journal of Consumer Research involving chocolate bars. They offered two options: a premium bar for thirty-two cents and a generic bar for sixteen cents. Half the customers bought the premium. Luna: Okay, so the premium was already winning. What did they add? Lucas: They added a third option: a gourmet bar for twenty-eight cents. Now, this gourmet bar was clearly inferior to the premium bar. It cost four cents less, but it was objectively lower quality. It was the decoy. Luna: So it made the premium bar look like a much better deal compared to the gourmet one, right? Lucas: It did. Sales of the premium bar jumped from half to two-thirds. The generic bar stayed steady. The gourmet bar didn’t steal any significant market share. It just served to highlight the value of the premium option. Luna: That’s a fifty percent increase in premium sales just by adding a losing option. That’s powerful. Lucas: It is. And notice that the generic bar didn’t suffer. The decoy didn’t cannibalize the cheap option. It only shifted the decision-making framework for the middle-to-high end buyers. Luna: So if you’re a business owner, this means you shouldn’t just raise prices. You should redesign your menu or your pricing page to include a strategic decoy. Lucas: Yes, but you have to be careful. If you add a decoy that is too obviously bad, it can backfire. Consumers are smarter now. If they spot the manipulation, they might resent it. Luna: So the decoy has to feel like a legitimate choice, just a slightly worse one. It can’t be a trap. Lucas: Correct. It has to be a real product or service offering, just positioned poorly relative to the target. For example, a hotel room with no window at a high price point. It’s a real room, but nobody wants it because the viewless room at that price is clearly a bad deal compared to the standard room with a view. Luna: It forces you to compare the viewless room to the standard room, making the standard room look like a bargain. Lucas: Exactly. And this works in physical retail too. Think about grocery stores placing the most expensive olive oil next to the mid-range one. The mid-range becomes the decoy that makes the expensive one seem justified, or vice versa. Luna: It’s all about context. Value is relative, not absolute. Lucas: Which is why businesses fail when they present options in isolation. If you only offer one price, customers have to decide if it’s worth it based on their internal reference points. But if you offer three, you control those reference points. Luna: So the decoy effect is really about controlling the narrative of value. Lucas: It is. And it’s subtle. Most people walk out of the store thinking they made a great decision, not realizing their choice was engineered by the presence of a third option. Luna: It makes you wonder how many other decisions we make are influenced by hidden comparatives. Lucas: Probably more than we’d like to admit. But once you see it, you can’t unsee it. Next time you’re looking at software plans, look for that third tier that seems slightly off. That’s likely your decoy. Luna: And if you find yourself buying the top tier, ask yourself if you actually needed it, or if you just wanted to beat the decoy. Lucas: Good advice. It’s a simple tool, but a deeply psychological one. It highlights how much our preferences depend on the frame we’re given. Luna: Do you think companies will keep using this as long as it works? Lucas: Until it stops working. But as awareness grows, the decoys will have to get more sophisticated. They’ll have to be harder to spot. Luna: So the arms race between marketers and consumers continues. Lucas: Always. But for now, the popcorn is still getting bigger. Luna: And more expensive. Thanks for breaking this down, Lucas. Lucas: Anytime. Next time you’re staring at a menu, remember the medium.