Latest / Marketing Psychology with Fexingo: Behavioral Triggers, Persuasion, and Consumer Behavior / The Decoy Effect How Adding a Worse Option Boosts Sales
Transcript
- Lucas: So you walk into a movie theater, and the popcorn sizes are small, medium, and large. The small is six dollars, the medium is seven fifty, and the large is eight dollars. Which one do you pick? Luna: I'd probably go for the medium, honestly. It's only a buck fifty more than the small, and I get more popcorn. Lucas: Right, and that's exactly the trap. Because the medium is the decoy. It's not there to be bought, it's there to make the large look like a steal. You see the medium at seven fifty, the large at eight, and you think, why wouldn't I just pay fifty cents more for a much bigger bucket? That's the decoy effect in action. Luna: So the medium is just a shill to get us to upgrade to the most profitable size. That feels almost too simple. Lucas: It is simple, but the effect is real. The term comes from a classic study by Dan Ariely, where he found that people's choices dramatically shifted when you added a clearly inferior option. In his famous subscription pricing example, the economist magazine offered a web-only subscription for fifty-nine dollars, a print-only subscription for a hundred and twenty-five, and a print plus web subscription for a hundred and twenty-five. Now, the print-only option is the decoy. It makes the combined offer look like an incredible deal, because you get both for the same price as just the print. Luna: Wait, so when you have just the web-only and the print plus web, what happens? Lucas: In the study, when they only offered the web-only at fifty-nine and the combined at a hundred and twenty-five, most people picked the cheaper web option. But when they added that decoy print-only at a hundred and twenty-five, a majority suddenly switched to the combined. The decoy made the combined option seem like a bargain, even though the price hadn't changed. Luna: So the decoy isn't just about making one option look better, it's about shifting the entire frame of comparison. That's sneaky. Lucas: Exactly. And you see this everywhere. Think about how a restaurant prices its wine list. They'll have a cheap bottle at thirty dollars, a mid-range at fifty, and a premium at sixty. The mid-range is often the decoy, making the sixty-dollar bottle feel like a reasonable upgrade. Or in software subscriptions, where the middle tier is priced so close to the top tier that you think, why not just get the top one? Luna: I've definitely fallen for that. I remember signing up for a streaming service and I chose the premium plan because the standard was only a dollar less, and I thought, I might as well get the good stuff. Lucas: That's the decoy effect working on you. And it's not just for pricing tiers. It can be used in product design, like having a smaller size that makes the larger one seem more generous. Or in service bundles, where you add an option that's clearly not as good but priced almost the same as the one you want to push. Luna: But is it ethical? I mean, you're essentially tricking people into picking the option you want them to pick. Lucas: That's a fair question. Some would argue it's just good design, helping customers make a decision. But there's a fine line between guiding and manipulating. The key is whether the decoy is transparent and whether the chosen option genuinely provides value. If you're just using a decoy to push people into paying more for something they don't need, that's not great. Luna: So it's about the intention and the outcome. If the customer ends up happy with their choice, maybe it's fine, but if they feel ripped off later, that's a problem. Lucas: Right. And the decoy effect is actually banned in some contexts, like in political voting, where adding a third candidate can split the vote. But in marketing, it's fair game, as long as you're not being deceptive about what you're selling. Luna: That makes sense. So, what's a real-world example of the decoy effect that we can see today? Lucas: A great one is the New York Times subscription. They often have a digital access plan, a print plus digital plan, and sometimes a basic digital plan. The middle one is the decoy. They price it so that the print plus digital is just a few dollars more than the digital-only, and it includes the print edition plus extra benefits. So the consumer thinks, why not get the full package for a couple bucks more? That's a classic decoy structure. Luna: So it's about making the target option look like a no-brainer. And I've seen it in gym memberships too, where the monthly pass is slightly more than the annual, so you just go for the annual. Lucas: Exactly. And the decoy doesn't always have to be more expensive. Sometimes it's a smaller portion or a lesser feature that makes the target look better. The key is that the decoy is dominated by the target option, meaning the target is better in at least one way, and the price difference is small. Luna: Dominance is a good word. The decoy is essentially there to make the target option more attractive by comparison. Lucas: And research shows that the decoy effect is strongest when people are uncertain or when the options are complex. That's why it works so well in subscription plans, where you have to weigh multiple features and prices. The decoy simplifies the decision. Luna: So it's a cognitive shortcut. Our brains see a clear winner and we latch onto it. Lucas: Right. And that's why it's so powerful. It taps into our desire to make the best choice without doing all the mental math. The decoy gives us a convenient heuristic, and we run with it. Luna: I have to admit, I've been guilty of that. I remember choosing a phone plan because it had the most data for just a couple bucks more than the next one down. I didn't even need that much data, but it felt like the smart choice. Lucas: And that's exactly the kind of moment where the decoy effect sneaks in. You're not being irrational, you're being influenced by the way the options are presented. That's what makes it so fascinating. Luna: So, as a marketer, how do you actually design an effective decoy? What are the key ingredients? Lucas: Well, first, you need to have a clear target option that you want to sell the most. Then you create a decoy that is similar to the target but slightly worse on one dimension, like price or features. The decoy should be priced close to the target, so that the target seems like a better deal. And you want the decoy to attract some attention, but not so much that it actually gets picked. Luna: And the decoy should be clearly inferior, but not so bad that it's obviously a trick. There's a sweet spot. Lucas: Exactly. If the decoy is too obviously worse, it might just make customers suspicious. But if it's too close to the target, it might actually get chosen. The goal is to make the target look like the rational choice. Luna: So, what are some common mistakes marketers make when trying to use the decoy effect? Lucas: One mistake is not pricing the decoy correctly. If the decoy is too cheap, it might become the attractive option and you lose sales. Another is having too many options, which can lead to choice paralysis. The decoy works best when there are three options, not five or six. Luna: So keep it simple. Three options, with one being the decoy, is the classic setup. Lucas: That's right. And you also need to make sure the target option is actually the best value for the customer. If you're just pushing a more expensive option that isn't better, they'll eventually feel cheated and might not come back. Luna: That's a good point. The decoy effect works best when it's used to guide customers to a genuinely better choice, not just a more profitable one. Lucas: And that brings up a broader point. The decoy effect is a tool, and like any tool, it can be used for good or for bad. As marketers, we have a responsibility to use it ethically. Luna: Speaking of ethics, I remember a case where a company used a decoy to push a higher-priced plan, but the lower-priced plan was actually better value for most users. They got a lot of backlash when customers found out. Lucas: That's a cautionary tale. Transparency and honesty are crucial. If your customers feel manipulated, they'll lose trust in your brand, and that's a far bigger cost than any short-term gain. Luna: So, how can listeners spot a decoy in their own buying decisions? Lucas: Look for options that are dominated by another option, meaning they are clearly worse in at least one way but priced similarly. Ask yourself, would anyone actually choose that option? If not, it's probably a decoy. And then consider whether the target option is really worth the extra cost. Luna: That's a great tip. And it's a good reminder to slow down and think critically about our choices, rather than just going with the flow. Lucas: Absolutely. The decoy effect works because it bypasses our rational brain. By being aware of it, we can make more informed decisions, whether we're buying a subscription or choosing a meal. Luna: And for marketers, the takeaway is to use decoys thoughtfully, always with the customer's best interest in mind. Lucas: Right. And that's a good place to wrap up. Remember, the next time you're staring at a menu or a pricing page, take a moment to see if there's a decoy lurking in there. It might just save you a few dollars. Luna: And it might help you understand why you made the choices you did. Thanks for listening, everyone. We'll catch you next time.