THE MARKETING STRATEGY THAT MAKES YOU OVERSPEND.
The decoy effect, popularly known as the “asymmetrical dominance effect” with economists, is a phenomenon where people tend to have a change in preference between two options when presented with a third option that is asymmetrically dominated.
Like these three options – GOOD, BETTER, BEST. What do you usually choose while buying a product? let me guess….The best option right? What if the product is too expensive? Then you end by buying a good product which is much less expensive. But what if the price difference is very less? You will definitely choose the best option. Which means you have been fooled. Here the better option acts as a DECOY which makes you to choose a best product.
The decoy effect plays a crucial role in making Marketing decisions. Many organizations religiously adhere to this human psychology marketing strategy while planning their product launches. Even the most valuable brands in the world, including Apple, resort to this strategy while positioning their products.
WHAT IS A DECOY EFFECT AND HOW IT WORKS?
Allow me to illustrate it for you…
Let’s say you went to a fast food store, and the fries are sold in different sizes. You see two options:
Small Fries: $3 | Large Fries: $7
You would probably pick the small fries, because who wants to spend $7 on same fries.
But now, let’s say you see not two, but three options:
Small Fries: $3 | Medium Fries: $6.5 | Large Fries: $7
Which one do you pick now?
Most people would instead buy the $7 fries because they feel they’re getting a lot for the extra $0.5.
The original options are still around, and the $7 option only appears to be a winner because how well it compares with the $6.5 option. Your brain’s comparison system has been tricked. You’ve been gamed.
Very few people will buy the medium $6.5 fries. The company did not intend to sell you the medium fries. They intended to use the medium fry option to get you to buy the large fry instead of the small fry.
The same strategy applies here. Even though you don’t have the appetite to eat king super saver meal, you end up buying it.
At first you estimate price between medium size and king size meal but in real what you want is a regular size meal. But the slight price difference in between medium and king size will make you forget about the regular size meal.
Here, the medium acts as DECOY. it makes you to attract for king super meal. But its main role is to make you avoid taking regular meal.
The decoy effect can cause us to spend and consume more than we really need. When a decoy option is present, we tend to make decisions based less on which option will best suit our purposes, and based more on what feels like the most advantageous choice.
Unfortunately, following our intuition doesn’t always mean we’re making the smartest choice. Most of the time, the decoy effect leads us to pick a more costly alternative than we would have otherwise.
WHY IT HAPPENS?
Before getting into the reasons why the decoy effect is so effective, we need to explain the concept of “asymmetric domination” more thoroughly. In an ideal decoy situation, there are three choices available:
- The target is the choice someone else (for example, a business) wants you to make.
- The competitor is the option competing with the target.
- The decoy is the option that is added to nudge you towards the target.
- The decoy effect is a cognitive bias exploited by companies all around the world to trick you into spending more.
It’s so prevalent, that if you’ve ever watched a movie, bought a computer or a phone, or even ate at a fast food restaurant – you’ve been a target of and a victim to the decoy effect.
IS IT ETHICAL?
It’s easy to look at a marketing psychology tactics like the Decoy Effect and question the ethics surrounding them. Sure, can they do it, but should you?
The answer, in this case, is yes they should, if they’re comfortable with it, because it is ethical.
One ethical guideline that researchers have to abide by is free will — we cannot force a participant to do something. Well, in this real-life scenario, you are not being forced by anyone to do anything. You are simply being provided with an alternative (albeit not an appealing alternative) and you have the right to decide. You are not altering your current offerings in any way. Customers still have the free will to choose the lesser option (as 16% out of 100% do – According to The Economist example).
STOP BEING SWINDLED BY THE DECOY EFFECT
Part of what makes the decoy effect so powerful is that as human beings, we do not like having too many choices. It can create as much stress as not having any options. We’d much rather someone else narrows the field to just a few options first. This is the type of setup where decoy theory thrives.
Some would describe this type of pricing as a form of gaslighting. It is deliberately manipulating others. Proponents of the decoy effect say that the ends (increased profits) justify the means. They also rationalize the decoy effect by minimizing its effect on consumers.
They say, “Well, what difference does it really make in the long run to consumers?”
And say that there are much worse deceptions that are perpetrated on consumers. Over time, falling for the decoy effect can make a substantial dent in your finances .
And the subtraction of money can be so gradual over time that you may not even realize how much you are spending. In addition, going for the larger food item because it appears to be less expensive can also lead to weight gain. How do you fight being susceptible to the decoy effect? Consumer education is key. Be aware when companies are using the decoy effect to “force” purchases. Learn what you are spending money on, such as “You Need A Budget”. When figuring out which item to purchase, calculate not only price per unit, but also determine how much of an item you truly need. Are you really getting a deal? or are you spending money that you would much rather keep in your account? Through time and education, that question will get easier and easier to answer.
DECOY EFFECT is in almost everything you choose.
– A hotel room where it mentions single bedroom (2000/- per night), double-bed room (4000/- per night), king size bedroom( 4500/- per night). Here the decoy factor is double-bed room, we end up choosing king size.
– In Mobile phones,
- 84gb- 100/-
- 256gb- 15000/- (DECOY)
- 512gb- 16000/-
– Subscription to apps such as Hotstar
- VIP- 399/ year
- Premium 299/ month (DECOY)
- Premium 1499/ year
DECOY factor is not what you choose. It is what makes you to choose an alternative option other than the decoy factor which is more expensive than the decoy factor itself.
BEWARE OF DECOY EFFECT.