The decoy effect is a phenomenon in which consumers tend to change their purchasing preferences when presented with a third choice. In other words, the customer is clear that he/she will purchase the cheaper option A in comparison to the expensive option B, but when presented with the third option that is relatively less expensive than option B, the consumer tends to change their mind and prefer to buy the expensive option B, thinking they are making the right choice without even knowing that they’ve been influenced.

The most famous example of this effect is the “THE POPCORN PRICING MODEL”

When presented with only 2 option, i.e,  small tub for 100rs and big tub for 150rs, the consumer will purchase according to their needs.

However, when the 3^rd price appears between two the decision changes, why?

In the given situation, The small tub retails for 100rs, Medium tub retails for 140rs and Big tub retails for 150rs.

Now the Medium tub (THE DECOY) will cause the more customer to purchase the big tub even if they don’t need it. It makes them think they are making the right choice that they are making the better buy. It’s a successful pricing strategy because its success is based upon the customer’s  interpretation  of price rather than the value it provides.

The decoy effect is effective for the sale ofproducts that are very similar but have slightly different features, such as the quality, the manufacturing process, or, as in the case of popcorn, the volume.

Service businesses can also use the decoy effect, especially online, when it comes to subscriptions or cloud space acquisition. You can take Netflix as an example, it offers 3 subscription packages.

1. A basic plan for rs 119 per month with only 1 screen access.
2. A standard plan for rs 499 per month with 2 screen access
3. A premium plan for rs 649 per month with 4 screen access.

In this scenario, the standard plan (THE DECOY) will convince the customer to buy the premium plan even though they don’t need it, leading them to believe that just by giving 150rs more they can get access for 4 screen..

Consequently, you can employ the decoy effect in your business in the same way, with the right strategy and execution it will help your brand to grow rapidly. ­­­­

Just in case you are wondering how you can use this principle to your benefit but confused about it, we at Digilatic works with brands to make this happen for them and we can team up with you to help you win the race of your league.