Decoy products and their pricing strategies

Have you ever been in a situation where you are trying to choose between two products and can’t decide which one to buy?

If so, then you have experienced the power of decoy products. Decoy products are items that are used to influence buyers into choosing a certain product over another.

In this blog post, we will discuss what decoy products are, how they are priced, and how they can be used to boost your sales!

What is decoy marketing?

Want to increase sales?

Here’s a leap of faith: start selling your customers a similar, but worse quality, product or service around the same price. It’s doubtful they will choose the less appealing item. However, you might see an uptick in sales for what you’re trying to sell.

To prove my point, here’s a real-world example.

I recently found myself in need of dandruff shampoo in China, so I went to the store only to be bombarded with variations of the same product from different brands. “Oily skin.” “Beer shampoo.” “Less sensitive”–the list goes on.

I was overwhelmed by all the choices, so I just picked the tallest bottle of shampoo that also had “dermatologically tested” written. This bottle was identical to several other bottles of “dermatologically tested” bottles, except that it was taller and held a bit more shampoo. Even better, it seemed to be the same price as the other brands.

I grabbed the bigger bottle and headed for the checkout counter. The big question was –

How did my confusion turn into such a large purchase so quickly?

The answer: Decoy Marketing.

 

 

The regular-sized shampoo bottles were the decoys in this case, but marketers can often use this same technique to guide customers toward a particular decision.

When I found a product that was nearly identical but had better value, it became the obvious choice.

Decoy marketing is based on the theory of relativity–our brains are incapable of comprehending absolute values, but they excel at contrasting two different values. By incorporating decoys into their sales pitches, marketers can make one product appear to be a superior deal in comparison to another.

The experiment

Ariely’s experiment from “Predictably Irrational” is described using magazine subscription offers. His experiments are often deceptively simple, and this one is no different. Two groups of subjects saw either offer to subscribe to “The Economist”.

Offer A

 

• $59—Internet-only subscription (68 chose)
• $125—Internet and print subscription (32 chose)

Predicted Revenue—$8,012

 

Offer B

 

• $59—Internet-only subscription (16 chose)
• $125—Print-only subscription (0 chose)
• $125—Internet and print subscription (84 chose)

Predicted Revenue—$11,444

The offer in ‘B’ is the same as the offer in ‘A’, with the addition of a print-only subscription.

Though not a single person opted for the unappealing offer, it had a nonetheless striking impact—62 percent more people chose the print and Internet bundle, and anticipated revenue leaped 43 percent.

The print-only offer was a decoy to make the combined offer look more valuable by comparison. Even though Ariely’s participants only had to choose and didn’t go through with actually paying for the deal, it’s observable that introducing the decoy made the combo proposal seem more charming.

 

How do decoys work?

Ariely posits that decoys can guide someone’s behavior when they are presented with two nearly equal options.

For instance, if you had to choose between a free trip to Rome or Paris- both of which come with breakfast included- you might deliberate for some time. However, Ariely argues that introducing a third option- a trip to Rome without breakfast- would make the first choice more attractive in comparison. With this new information, the individual is now more likely to decide on the original trip to Rome than the similar one offered in Paris.

So going back to the shampoo example, if a store received an overstock shipment of promotional shampoos with 20 percent more product than usual, the store might remove the smaller regular-sized shampoo bottles from shelves until all of the promo stock was gone. From the perspective of marketing, what customer would be daft enough to buy the regular bottle when they could get so much more for just a few pennies extra?

Decoy marketing logic would suggest that the store should leave a few of the small cans on the shelf alongside the larger ones. While it may seem counterintuitive, research suggests that doing so would actually bolster sales of promotional cans, and perhaps take market share away from competing products offered in a larger size.

 

Examples of Decoys

The decoy effect is more apparent than ever with cinema popcorn. For customers who are presented with only two options, a large or small bag of popcorn, they’ll often deem the large one too expensive and that they don’t need that much anyway. Consequently, their purchase will be based on needs rather than wants.

Small popcorn → $4.00    Large popcorn → $6.00

However, when a third price appears between the two, the decision changes. Why?

Small popcorn → $4.00  Medium popcorn → $5.50  Large popcorn → $6.00

The new, decoy price will make customers believe they are getting a better deal on the highest-priced product – even if they don’t need it. The large popcorn is just 50 cents more than the medium popcorn.

This is a psychological pricing strategy that’s successful because of how consumers see prices, as opposed to the actual value of products.

In real estate, for example, it’s not uncommon for real estate agents to set up a tour of multiple homes in the same ballpark price-wise, with the most appealing saved for last. To me, this feels like decoy marketing tactics; especially when the second to last property doesn’t compare well at all to the one they are hoping to sell you (say, it’s priced identically but needs many more repairs inside and out).

Ariely posits that this hack will be most successful when the house being compared is similar to the one being purchased, for example, two-story colonial homes with an equal number of bedrooms. Because purchasing a home is such a complicated, costly, and risky ordeal, it can be tough to get buyers to commit to a decision – even when they know it’s necessary. Savvy real estate agents understand that comparisons are an integral part of their buyer’s processes, and selecting houses wisely is crucial in helping them make up their minds.

 

Scientific Evidence

A study conducted using fMRI scanning found that our brains react differently when we are trying to decide between two options, depending on how attractive the options are.

When both options were equally as attractive, the subjects displayed irritation due to the difficulty of choosing. However, when another less attractive option was offered, the choice process became easier and more enjoyable.

 

Are Decoy Products and Their Pricing Ethical?

The practice of offering a cheaper, lower-quality product alongside a more expensive one is called decoy pricing, and it’s a common marketing tactic. But is it ethical?

On the one hand, decoy products can be seen as a way of tricking customers into spending more money than they intended to. On the other hand, some argue that it’s simply a way of providing consumers with more choices.

So what do you think? Are decoy products ethical? Let us know in the comments.

 

Conclusion

Customers usually have trouble picking one product over another. They need a little help to guide them in the right direction so they can get the product they really want or need.

For example, I would have eventually bought shampoo from that store regardless, but the unintentional decoy got me to make a decision more quickly than if I had over-analyzed my options. The regular-sized decoys nudged me toward purchasing the jumbo bottle at the same price, and thus closed the deal.

Most firms, when formulating their product offerings, try to create the most excellent and outstanding offers they can – a procedure I totally second. But there are times when adding a less alluring offer to the combination will seal more agreements on the better offers without depriving the client in any capacity.

So, next time you’re constructing your “good, better, best” bundles, think about chucking in a “not-so-good” package that’s alike to (but not as good as) the one you’d like to steer the majority of traffic towards. If that enhances sales of that item, then you’ll know your decoy is useful.

If you enjoyed reading our post, please read our other business-related posts on our blog