How does the decoy effect occur?
Posted: Wed Jan 29, 2025 3:30 am
When consumers have to choose between multiple options, choice stress often arises. To reduce the stress, they start eliminating options based on easily comparable criteria, such as price and quantity (Schwartz, 2004). A decoy cleverly takes advantage of this, because without adjusting the price or quantity of the other options, it distorts the image of the other options and thus the value in our brain.
The decoy effect also exploits our tendency to verliesaversie (Kahneman & Tversky, 1979). When you have to choose from 3 rather than 2 options, the loss of quality is more likely to influence your choice than a just slightly higher price. The decoy makes you more likely to choose a higher priced, higher quality product. A loss feels heavier than a gain, and you don't want to have to sacrifice quality (Hendricks, 2018).
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Examples in practice
The classic example of the decoy effect is that of a subscription to The Economist. The experiment shows how people's preferences change when you adjust the pricing strategy.
In its original format, The Economist gives you a choice of two subscriptions:
1: Online access for $59 dollars a year
2: Online access AND the magazine taiwan mobile numbers list in print for $125 dollars a year
In this case, most customers choose online access only. It is a tough choice between cheap online and expensive in print. In the end, the lowest price wins.
But, suppose the magazine prefers to sell the print version. A decoy succeeds in enticing customers to do so. In the new situation, there are three options:
1: Online access for $59 dollars a year
2: The magazine in print for $125 dollars a year
3: Online access AND the magazine in print for $125 dollars a year
In this case, most people choose the third option. It is still the more expensive option, but it is a better option than print only for $125. The choice between print only for $125 and online and print for $125 is easy. Customers are no longer comparing option 1 with option 3, but option 2 with option 3. The latter option delivers both print and online. As a result, most people end up choosing option 3. After this change in pricing strategy, sales at The Economist went up 43%!
The decoy effect also exploits our tendency to verliesaversie (Kahneman & Tversky, 1979). When you have to choose from 3 rather than 2 options, the loss of quality is more likely to influence your choice than a just slightly higher price. The decoy makes you more likely to choose a higher priced, higher quality product. A loss feels heavier than a gain, and you don't want to have to sacrifice quality (Hendricks, 2018).
Meeting disappointing results from your online marketing?
Request the free performance scan
Do the scan
Examples in practice
The classic example of the decoy effect is that of a subscription to The Economist. The experiment shows how people's preferences change when you adjust the pricing strategy.
In its original format, The Economist gives you a choice of two subscriptions:
1: Online access for $59 dollars a year
2: Online access AND the magazine taiwan mobile numbers list in print for $125 dollars a year
In this case, most customers choose online access only. It is a tough choice between cheap online and expensive in print. In the end, the lowest price wins.
But, suppose the magazine prefers to sell the print version. A decoy succeeds in enticing customers to do so. In the new situation, there are three options:
1: Online access for $59 dollars a year
2: The magazine in print for $125 dollars a year
3: Online access AND the magazine in print for $125 dollars a year
In this case, most people choose the third option. It is still the more expensive option, but it is a better option than print only for $125. The choice between print only for $125 and online and print for $125 is easy. Customers are no longer comparing option 1 with option 3, but option 2 with option 3. The latter option delivers both print and online. As a result, most people end up choosing option 3. After this change in pricing strategy, sales at The Economist went up 43%!