The decoy effect: Definition, how it works and examples
"People always go for a bargain – even when, soberly considered, it actually isn't one at all." This is evident in the use of the decoy effect, also known as the asymmetric dominance effect. The cognitive distortion phenomenon has been deliberately used in marketing and sales ever since it was proven in sales psychology experiments. Here you will learn what the effect is and how it boosts the sales of products and services.
What is the decoy effect?
The decoy effect belongs to the category of cognitive biases. Like many related phenomena, it causes people to perceive circumstances differently than they are portrayed in reality. In this specific case, a distracting entity (usually another product) serves as the driving force for manipulating the consumer's choice or behavior. If a choice between two initial products does not lead to a clear result, adding a third unit as comparison can drive customers to decide between the two options because the „decoy“ underscores the alleged strengths of one of them.
The decoy effect describes the direct manipulation of decisions and consumer behavior through the addition of a third alternative, which makes it easier to draw a comparison between the two initial products.
How does the decoy effect work?
This cognitive distortion consists of adding a third offer that is generally not supposed to be purchased – a decoy – which has considerable influence on the sales process. Consumers make up 85 to 95 percent of their purchasing decisions unconsciously and are, therefore, susceptible to both unconscious cognitive distortions and deliberate external manipulation.
American marketing professor Joel Huber and his colleagues first researched and described the decoy effect in 1982. Huber and his team discovered that it is easy to persuade consumers to make a choice when wavering in their decision between two products with different prices. This is done by introducing a third decoy product that is higher in quality and/or much more expensive.
The key to a successful decoy is to present a product that is "asymmetrically dominating," meaning that it is superior in at least one aspect to the comparison products. Viewed from the perspective of cognitive psychology, one reason this approach works is that the decoy effect successfully appeals to the human reward system.
Examples of the decoy effect
While many examples of the decoy effect can be found across all selling platforms, they all function on the same basic principle.
For the decoy effect to work, the customer must have already chosen a seller or online store. The decoy effect does not work across multiple competing offers.
Within an offer (for example, a subscription), purchasing decisions can be specifically influenced by initially offering the two contrasting products and then the asymmetrically dominating decoy product. For sellers, utilizing the effect is always a matter of optimizing the shopping cart value and generating as many sales as possible.
In particular, publishers of newspapers and magazines rely on the decoy effect because the market is highly competitive and the inherent double structure of the offers (print, online) facilitates the use of the effect.
Let’s have a look at an example of making a choice between two wines:
Both wines are appealing to potential purchasers. However, the customer is uncertain because Product A is more expensive (a very well-known winery), but Product B offers better quality (an especially good vintage). Since the first wine brings in more profit, the seller is naturally more interested in selling Product A, even if Product B would be the better choice for the customer.
The seller now utilizes the decoy effect and offers the customer Product C, which is a premium product (an especially good vintage from a very famous winery) that is even more expensive than Product A. This "decoy“ product automatically increases the probability that the customer goes for Product A and not Product B. In the rare case that Product C is purchased from the three options, this is also to the benefit of the seller.
The decoy effect in marketing: More sales thanks to deliberate "deception"
Even if the decoy effect may seem easy to recognize, it is very effective due to the high number of purchasing decisions that consumers make unconsciously. Furthermore, the decoy effect is not exclusive to the B2C sector: Even experienced shoppers in the B2B sector are at the mercy of the decoy effect's marketing influence. It is most effective at promoting sales when offers are presented to customers within the smallest possible space. A right moment in the purchasing process to throw in a decoy effect product can be when the shopping cart is already full by using an algorithm or another function that recommends an asymmetrically dominating product based on the cart's product selection. This alters the purchasing decision during the home stretch so that it results in more sales.
The decoy effect has an especially strong impact on marketing when it is employed in combination with the anchoring effect, which can also be utilized for targeted manipulation during purchasing decisions. The anchoring effect works by deliberately influencing people's perception of numbers and their ability to make assessments through the use of anchors (specific numbers), without the anchors themselves providing any substantive information. This effect occurs even when the numbers are completely random.