We all make rational decisions when buying a new phone or branded clothes, but can we rely on our susceptible human consciousness to make the right choices for us?
The answer to this question is, quite surprisingly, no.
We are all aware of the choices we make, and according to us, it is usually the best possible outcome. Unless… our minds are deliberately influenced to sway towards one product, typically the expensive one, and that is exactly what is happening in almost every industry.
It all begins with a price. Price is one of the four important marketing elements and also a delicate one, much thought goes into setting prices to pull us towards the product. There are countless pricing strategies but there is one exceptionally devious pricing strategy that tempts us to fall right into the traps set by giant companies.
It is the decoy effect.
The decoy effect is a phenomenon that lures the consumers to switch their preference between two options when presented with a third option. As the name suggests, a decoy product is introduced to the customers to persuade them into buying something they normally wouldn’t have. This effect is put into action using a decoy product, which we will discuss further on.
Before we get into how the decoy effect works, we need to understand the elements involved. In an ideal situation, there are three available choices:
The target product is the choice we want to market heavily
The decoy product is the bait we use to market the target
The competitor product is the one we don’t want consumers to purchase heavily
To begin with, imagine you are looking to buy an iPhone. You are presented with two options — iPhone 12 for AED 3500 (competitor) and iPhone 12 Pro Max for AED 5000 (target). Although the iPhone 12 Pro Max comes with significantly more features and a wider screen, the iPhone 12 can also provide a friendly user–experience, with some of the most advanced features. Like most of us, our minds tell us to go with the cheaper option that also comes with quite a few features. This is because we see our money is not worth the product that is targeted towards us, hence we choose the feasible option.
However, when we are presented with the third option — the decoy product, our perspective begins to change. The decoy product, in this case, the iPhone Pro is priced at 4700 and to make one of the other phones much more attractive. The main goal behind the decoy is not to sell, but to nudge the customers towards the target product — usually the expensive and profitable one — and away from the cheaper, more affordable option.
But why would anyone buy the more expensive one? This is where cognitive bias comes into the picture. When the decoy product comes into the picture, we subconsciously compare the target with the decoy. In the previous example, iPhone Pro Max seems to have a lot more features for just AED 300 more than the iPhone Pro, which still lacks some of the best features Apple can offer. And that is how we willingly purchase the expensive one, believing that we are being given the best value for our money.
To prove the decoy effect,Joel Huber, John Payne, and Chris Putoexperimented with two groups of people. One group was given the option to go to a five–star restaurant 20 mins away or a three–star restaurant 5 mins away. The objective was to test whether people would choose comfort over quality. As expected, the majority of the people chose for personal benefit: the three–star restaurant.
To the second group, researchers added another option of a four-star restaurant 35 minutes away. This time most people chose the five–star restaurant. The decoy over here was the four–star restaurant as no one would want to give up on comfort and quality at the same time. The five–star restaurant is closer than the four–star restaurant and offers better quality than the three–star restaurant, thus making it dominating among the three options.
From low-priced goods like popcorn to larger purchases like laptops, decoys are everywhere. Being aware of its existence isn’t enough to avoid it. This is because part of the reason this bias works so well is due to the fact we are unaware of being manipulated, instead, it feels more rational. We must realise that we are not forced into purchasing the target product, the decoy simply leverages the target. But will the decoy effect always have the power to stir up our decision? Well, that’s a topic for another article.