Understanding the principle of liking and knowing how to use it in your marketing and on your website can give you an unfair advantage over the competition.
The decoy effect (also called the asymmetrical dominance effect) occurs when people tend to have a change in preference between two options when a third, asymmetrically dominated option is presented.
Here’s everything you need to know about the decoy effect, plus all other important principles and theories that can supercharge your marketing and influence people to buy your products or services.
What is the decoy effect?
The decoy effect (also called the asymmetrical dominance effect) is a cognitive bias that occurs when people change their preference between two options when a third, asymmetrically dominated option is presented. Put differently: when there is a third important choice (the decoy), a consumer is more likely to choose the more expensive of the first two options.
How can businesses create an asymmetrically dominated third option?
An option is asymmetrically dominated when it is worse, in all respects, than another option. But, when compared to a third option, it is worse in some respects and better in others.
When the third option is presented, a higher percentage of consumers will chose the dominating option (the one that's worse in some respects and better in others than the third option) than when the third option is absent.
The third option, when it’s asymmetrically dominated, acts as a a decoy and serves primarily to prompt people to choose the second (dominating) option.
How does the decoy affect impact consumers?
The decoy effect influences people to spend and buy more than we need. When a decoy option is presented effectively, we tend to make decisions based on what appears to be the best choice, and not on which option best meets our needs. The result is that consumers typically pick a more costly alternative than they would have picked otherwise.
The decoy effect is a nudge that subtly changes the situation. It doesn’t manipulate or threaten. It simply leverages a cognitive bias of human behavior to push us to pick a specific option we likely would not have picked if the decoy was absent.
Why does the decoy affect work?
Decoys de-stress the decision making process and calm our anxiety of having differentiated options to choose from.
The 'paradox of choice' is another principle of psychology, and describes how people have a harder time making decision and become overwhelmed when presented with too many options.
This happens because of preference uncertainty. In any given choice, we decide based on personal factors. But the less certain we are about those factors, the more difficult it becomes for us to make a choice.
As a result, people typically focus on just a few factors, such as price and quantity, when choosing among products. The decoy affect leverages this by manipulating those factors.
And, the decoy affect takes advantage of another principle of psychology - loss aversion. People hate losing more than we like winning. Finding $10 on the street may improve your mood for a short while, but losing $10 may ruin your whole day.
But, we don’t define losses absolutely. We define them relative to something else. And, that’s how the decoy affect can strongly influence behavior. Decoys work, in part, by manipulating our reference point. Compared to the decoy, the next best option is better in some ways and worse in others. But, loss aversion causes us to think more about the disadvantages when making our decision. As a result, we tend to pick the next best product, when compared to the decoy.
Additionally, people are more averse to worse quality than we are to higher prices. Good decoys are designed to promote someting that is both better quality and higher priced.
Scientific proof for the decoy effect
Joel Huber, John Payne, and Chris Puto conducted a study to see how the decoy effect impacts our everyday decisions. They asked a group of people to choose between two options: a five-star restaurant 25 minutes away, and a three-star restaurant that was 5 minutes away. They wanted to test whether people would choose quality over convenience.
when presented with two options, people chose based on their personal preferences.
But then the researchers presented a third option to a second group of people - a four-star restaurant located 35 minutes away. In the second group, most people shose the five-star restaurant option.
Why did most people in the second group choose the 5-star option?
The four-star restaurant was asymmetrically dominated by the five-star restaurant. The five-star restaurant was both closer and had a higher rating. The mere presence of the third option made the five-star restaurant look attractive - it had the highest rating but required a slightly farther drive. But both the rating and the drive were better than the third option.
Pushing the experiment further, the researchers presented a different third option to another group - a three-star restaurant that was 15 minutes away. Most people chose the two-star restaurant instead of the three-star or five-star restaurant.
This happened because the third option (the decoy) was both farther and ranked lower than the original three-star restaurant that was 5 minutes away.
The Economist subscription example...
One of the best examples of the decoy effect was an old subscription page of The Economist. Three options were presented: $59 for electronic only, $125 for print, and $125 for print and electronic.
The first option at $59 seemed reasonable. The second option at $125 seemed expensive. The third option offered options 1 and 2 (web and print) for the same price. When this was tested with students, zero students chose option 2. Most chose option 3. When the second option was eliminated, most students chose option 1 (online subscription only).
How can you use the decoy effect in your business?
To effectively use the decoy effect in your own business, pick the product or service you want to sell. Make sure your customers already like it. And, make sure that the product or service already contains more benefits and is priced higher than the other products. Then, create a decoy. Your goal is to make the third option (the decoy) asymmetrically dominated by the product you chose in order to increase the attractiveness of the product you chose. You need to have at least three (more offers will create a decision paralysis). Price the decoy close to your key product but choose the same or a slightly lower price. And, be sure that the decoy doesnʑt offer as much value as the product you chose. That way, it will be slightly cheaper but the value will be meaningfully lower, prompting people to consider your more expensive option that offers the most value.
How can you avoid the decoy effect as a consumer?
The decoy effect works well because it is rational. So, it’s not easy as a consumer to void it. But, there are some strategies you can use to decrease the influence of the decoy effect.
You can minimize the decoy effect by choosing your preferences ahead of time. Decide on what qualities you value the most. So, if you’re buying a car, decide if it’s most important for it to have self-driving capabilities. That way, when comparing different models from a manufacturer, you can focus on that important factor.
Another way to minimize the decoy effect is to buy only what you need. Focus on why you’re buying the product or service and what you specifically need. Buy to meet your exact needs, not the product or service that appears to offer an overall better value to someone.
Finally, be cautious when presented with three options. This is a clear signal the decoy effect may be present.
What are the core principles of marketing psychology?
There are many important principles, theories, and concepts used in marketing psychology. These include:
- the principle of reciprocity
- information-gap theory
- social proof theory
- and loss aversion marketing
You can research each of these principles, plus dozens of other key principles of marketing psychology, via the links below.
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