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According to Wikipedia, the “decoy effect” (also known as the “asymmetric dominance effect”) is the phenomenon whereby consumers change their preference between two options when they are also presented with a third option that is asymmetrically dominated. “
In simpler language, this is how lures are used on a daily basis during consumer experiences:
Scenario 1: You order a medium Pepsi at the theater for $ 2.75 and the person behind the counter asks, “Do you want a large one for just 25 cents more?” You say “Yes” … that’s the decoy effect.
Scenario 2: You are sitting in the bar in the airport terminal waiting for you to board your plane. As soon as you order your $ 7 cocktail, the bartender smiles and says, “Want a double drink for just $ 2 more?” You say “Yes” … that’s the decoy effect.
I have no idea what your consumer’s response would be under similar circumstances, but I know from my own experience that I will choose the asymmetrically dominated option almost 100% of the time.
In the traditional “Good-Better-Better” pricing model, Dan Ariely, author of the New York Times best-seller Predictably Irrational – The Hidden Forces That Shape Our Decisions, revealed to me the best use of a lure.
Turn to page 5 of Dan’s fascinating book and you will find an interesting study he conducted with 100 students from MIT’s Sloan School of Management. (He set out to test the predictability of the choices they made from an Economist magazine subscription offer that he found on the Internet some time earlier.)
New Review of the Economist Subscription Offer: In the words of Dan Ariely, “I read these (three) offers one at a time. The first offer (the $ 59 internet subscription) seemed reasonable. The second option (the print subscription $ 125) seemed a bit pricey, but reasonable. ” “But then I read the third option: a print and Internet subscription for $ 125. I read it twice before my gaze returned to the previous options,” he writes.
At this point, Dan asked himself the same question that thousands of my students have asked when presented with the same shopping situation:
“Who would want to choose the ‘Best’ option (print only – Offer B) when both ‘Good’ (Internet only – Offer A) and ‘Best’ (print only – Offer B) could be bought for the same $ 125 price (‘Best’ – Offer C)? “
Good question.
Here’s The Economist’s sleight of hand pricing model in a nutshell:
Offer A: Internet-only subscription for $ 59
Offer B: $ 125 print-only subscription
Offer C: Print and Internet Subscription for $ 125
Subscription Offer for Economists: When Dan gave these same three options to 100 students at MIT’s Sloans School of Management, here’s how the results played out:
Offer A: $ 59 ~ 16 Student Internet Only Subscription
Offer B: Print Only Subscription for $ 125 ~ 0 Students
Offer C: Print and Internet Subscription for $ 125 ~ 84 Students
Fascinating isn’t it?
In my own marketing experience, I have found that the decoy pricing model influences my prospects to have a strong bias towards Offer C or the “Best” Option in the Good-Best-Best pricing model.
Dan Ariely discovered the same phenomenon.
Economist subscription offer (decoy removed): When Dan removed the decoy (Offer B or “Best” option in the Good-Better-Better model), he wondered if the 100 students at MIT would react the same way. After all, the option you removed was Offer B (the one nobody selected), so it shouldn’t have made any difference, right?
Not quite …
Under the decoy removed condition, Dan found that 68 of the students chose Offer A (online only) for $ 59. That’s up to 425% and represents less profit.
But wait, it gets even better … only 32 students chose Offer C (Internet Print Mix) for $ 125. That’s a 262% decrease and represents a lot less profit!
Here are Dan’s actual results for a similar offering without the lure (print-only option):
Offer A: $ 59 ~ 68 Student Internet Only Subscription
Offer B: Print and Internet Subscription for $ 125 ~ 32 Students
Final analysis: As consumers, it seems that “the more we get, the more we want.” As marketers, using a decoy when checking prices can be an irrationally predictable excuse for your prospects to choose the “Best” option that is likely to be the most beneficial for both of you. Test your price and use this model with your product and see what happens.
