💡 The Decoy: The Tactic that Changes Consumer's Perceptions

✍️ This will change the way you make purchasing decisions

You are craving a coffee before going to work. At the coffee place, you look at the menu and wonder which size you should get. The small one for $3 might not be enough for you and the large option for $7 is way too expensive. As you think about which one should you get, you notice the third option. A medium for $6. Suddenly, the large option looks best. It’s only $1 more costly than the medium option, and you will get a lot of coffee, so it seems rational to get the large coffee.

We see this pattern everywhere. McDonald’s with the fries and drink sizes, Dinsey+ subscriptions, hotel rooms, and many other examples. Sometimes it’s actually just the company offering different options to meet the willingness to pay across customer segments. But sometimes, companies introduce a “decoy” product so you have a third option that serves as a reference point.

And since we optimize for value, we’re happy to have this extra option. Even if it means that we’re “persuaded” into spending more money. We’ll go through some examples to see different decoy* applications. But first, let’s see why this tactic impacts our perception.

^{*This persuasion tactic can indeed be quite manipulative if used for the wrong purposes and make people buy things they don’t need. So think twice before implementing it in your business and please use this ethically.}

🧠 How adding a third option changes perception

The decoy effect leverages consumer psychology to subtly influence their choices. By introducing a third "decoy" option, you can shift their perception of the original two options, ultimately guiding them toward your preferred choice.

Here's how it works:

• The Decoy: This option is strategically designed to be asymmetrically dominated. This means it is clearly inferior to the option you want your customers to buy (your "target") but partially inferior to the other one that you are not particularly excited about selling (the "competitor").

• Shifting Perceptions: The presence of the decoy changes how consumers compare the remaining options. They may perceive the target as a better value compared to the now-inferior decoy, even if its relative advantage over the competitor hasn't changed.

Let’s take the coffee example. You are deciding which coffee to buy based on price and size. The small coffee is the competitor, the large one is the target, and the medium is the decoy because it’s asymmetrically worse than the other two options. The medium is larger (better) than the small one, but also more costly (worse). However, the large option has more coffee than the medium one, and it’s just a little more expensive. This makes it seem like the best deal.

💡The Decoy Effect in Practice

The option on the left is (the decoy), because compared to the middle option (the competitor), it is worse. You pay the same price and get less benefits. But the right option (the target) is way better than the middle option. You get double or more than double the benefits for just $1.5, so less than double the price! Hence, the attention of the customer will go to the option on the right, because it seems like it’s more valuable. And, the website even labels the option as “recommended”.

✅ How to apply this to your business

You can start using this in your business by following these 3 easy steps:

1. Target Selection: Identify the option you want consumers to choose (the target).

2. Craft the Decoy: Strategically design the decoy to be objectively inferior to the target yet slightly better than the competitor in specific attributes.

3. Position Strategically: Present the decoy alongside the target and competitor, ensuring clear comparisons are possible.

And you can do this with physical or digital products, as we saw with the example of the coffee and hosting website. But the effect applies to services as well.

📖 Further information or sources for you to dive deeper into it

Here are some resources and information for you to dive deeper into this topic.

• The Choice Factory - Richard Shotton

• The Decoy Effect - This leads to a website with many behavioral economics case studies.

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Thanks so much for reading,

Juan Diego

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Please use these insights & knowledge ethically and with respect.