Use The Decoy Effect to Increase Your Sales

In the late 2000s, psychologist and behavior economist Dan Ariely noticed something strange about how The Economist priced its subscription options. Its three subscription options were:

1. A web-only subscription for $59
2. A print-only subscription for $125
3. The web and print subscription for $125

You might be as confused as Ariely was – why would anyone buy the print-only subscription?

It turns out that they wouldn’t.

Putting The Theory To The Test

Ariely conducted a study among students at MIT. He asked them which option they would prefer to purchase. Of course, it was no surprise when no one chose the second option. Overall, participants preferred the third option: 84% chose the web and print option, while only 16% of the students chose the web-only option.

But Ariely was interested to know what would happen if he got rid of the second option. After all, if no one wants it, why include it? So he gave a different group of students a more focused set of options:

1. A web-only subscription for $59
2. The web and print subscription for $125

Preferences shifted dramatically. Now 68% of students preferred the web-only option, and only 32% preferred the web and print option. By including the unattractive option, The Economist shifted preferences towards the more expensive subscription product and improved sales by about 43%.

Why did this happen? Why would an option that no reasonable person would select change the choices people made? It has to do with the decoy effect.

What Is the Decoy Effect?

The decoy effect, also called the “attraction effect” or the “asymmetrical dominance effect,” is a psychological phenomenon in which inferior “decoy” options influence people’s preferences. The unattractive option is a “decoy” because the marketers are not putting it there to be purchased.

By including inferior options, marketers shift the frame of comparison and change the kinds of value comparisons that potential customers make about the other options. The unattractiveness of one option helps customers see the value of the alternatives. When used appropriately, this effect can nudge people towards making certain purchasing decisions more often.

In the Economist example, the decoy second option created a comparison that led people to see greater value in the third option–you could get both web and print subscriptions for the same price as just the print. That’s a great deal. The third option looks more valuable when it is placed next to the second option than it does when it’s presented by itself.

The Decoy Effect In Practice

This effect has been shown to occur in several contexts. It can work in dating: we are more likely to be interested in someone if we see them beside someone who looks similar but slightly less attractive. It can also occur in voting preferences: the third most popular candidate in a race may boost preferences for one of the top two candidates over the other.

And you may also come across it in employment decisions. In hiring decisions, the decoy effect may push employers to be more likely to choose some candidates more of the time. Similarly, in employees’ choices between job offers, the decoy effect could influence the workplaces that employees choose.

Of course, in most contexts, the “decoy” inferior option is not placed there on purpose. Our potential partners do not usually try to seduce us by standing next to slightly less attractive people (although some might). Similarly, politicians don’t choose their political opponents to make them look better.

These studies just serve to show that our judgments of options are influenced by the other options we are given. It’s a robust psychological effect, and the effect can be quite significant.

Business Applications

The effect can also be used to change customers’ product preferences. For example, National Geographic tested this effect with popcorn purchases in a movie theatre setting. They started with two options:

• Small popcorn for $3.
• Large popcorn for $7.

In the experiment, the majority of people purchase the small popcorn. People said that $7 was a little too expensive for the large size.

Then they added a third option, a medium popcorn size option for $6.50. This was a decoy because the choice is inferior to the large popcorn: you get much more popcorn with the large option for very little price difference.

• Small popcorn for $3.
• Medium for $6.50.
• Large popcorn for $7.

Now, many more people chose the more expensive large size. Adding the medium size helped people see the greater value in the large popcorn option.

Online Retail

Another study, this time from the University of British Columbia, looked at the effect in an online diamond retail environment. They found that including decoy–diamonds that were slightly inferior to others but just as expensive–led to significantly greater purchasing of the better diamonds. They calculated that the decoy effect increased profits by 21%. For this retailer, that came out to about $15.4 million per year.

How To Apply The Decoy Effect

You can apply the effect to your marketing–it could help you increase your profits and sales of some products. You would first determine what thing you want to sell more of. This is the “target” product. Then, you would create an option that is worse than that option but not worse than all the options.

For example, imagine you are a software-as-a-service (SaaS) company. You have three subscription options:

• Basic: for $20 a month, the customer gets 4 product features.
• Professional: For $100 a month, the customer gets 8 product features.
• Enterprise: for $200 a month, the customer gets 12 product features.

Imagine you want to increase the proportion of your customers choosing the Professional option instead of the Basic option. The target product is the Professional subscription option. You could add a decoy to the product spread, making the Professional subscription look more valuable. So, for example, you might add a “Professional lite” subscription:

• Basic: for $20 a month, the customer gets 4 product features.
• Professional Lite: For $95 a month, the customer gets 5 product features.
• Professional: For $100 a month, the customer gets 8 product features.
• Enterprise: for $200 a month, the customer gets 12 product features.

The Professional Lite option is a decoy because it’s inferior to the Professional option. It doesn’t give you many extra features, but it costs almost the same as the Professional. Customers would be more likely to go for the Professional option because they can see that it adds quite a bit more value for not much extra money.

Now imagine your target is the Enterprise subscription. You could change the options such that it appears to be more valuable in comparison:

• Basic: for $20 a month, the customer gets 4 product features.
• Professional: For $100 a month, the customer gets 8 product features.
• Enterprise Lite: For $195 a month, the customer gets 9 product features.
• Enterprise: for $200 a month, the customer gets 12 product features.

Adding the Enterprise Lite option highlights the value of the Enterprise option because you can get many more features for only $5 extra a month. It makes that option much more attractive to customers. Including the Enterprise Lite option would likely increase the proportion of customers who would purchase the Enterprise option.

There are tons of other contexts you could use this effect.

Coffee Shops

You sell three sizes: small, medium, and large. Your target is the large-size option. Make the price of the medium size close to the large size, and you will probably start selling more of the large size.

Real Estate

You are a realtor and you want to highlight the value of a particular house to a client. Emphasize the value by comparing two options that are not as good; perhaps two houses with the same price or more expensive but with fewer amenities or worse locations.

Marketers

You sell blogs, email copy, and other content marketing. Your target is your “SEO Content Strategy” bundle. Choose pricing bundles to include a “decoy” or unattractive option. It could look something like this:

• Single Blog: Get one blog article for $250
• Blog Bundle: Get five blog articles for $1200
• SEO Content Strategy: Get a full SEO site audit, content strategy, calendar, and five articles for $1300

In this case, you would likely sell more of the “SEO Content Strategy” option because it’s not much more than the “Blog Bundle” and comes with much more content.

The takeaway

Our evaluations and preferences are not fixed–they depend on the context. One of the context cues that influences how we evaluate an option and our preferred option is the other options that are also available.

You can use that in your marketing. Creating “decoy” product options can highlight the value of your target product options–the products you’re trying to sell more of. When you increase the perceived value of your target product for your customers, you may increase the likelihood that they will purchase that product.

Use this when you’re designing your pricing strategy. Think about which option you’d like to sell the most of. Then include an option that makes it look more attractive and highlights its value. You could create a “decoy” and add an option with fewer features for roughly the same price.

Keep in mind that this effect can’t con someone into buying something they don’t want to. If you don’t want a subscription to the Economist, you won’t buy one, no matter the options. Same with popcorn, diamonds, and SaaS products.

All the decoy effect does is help you understand how people make value comparisons. Knowing what kinds of comparisons people make can help you set up your options to highlight the value of the products you want to sell the most.