OnDemand WTP Pricing Research

Decoy Effect: Sell Bigger And Better | TwoFeet Marketing

While most people think that increased time spent prospecting and selling will earn you more profit, the truth is, that there are numerous tactics to profit maximisation. Cost efficiency exercises and rising prices are two, easy to implement, strategies. Another two are pricing strategy analysis and using the decoy effect to encourage customers to buy one product over another.

What Is The Decoy Effect?

The decoy effect, also known as the asymmetrical dominance effect, is a scenario where a customer changes their preference between two products when presented with a third. The new product should be asymmetrically dominated; i.e. there is no consistency between the decoy price and that of the others.

The decoy effect is a great option when you have service packages or products that can be offered in different quantities. If you use product tables on your website, this pricing strategy is the perfect solution.

Examples Of The Decoy Effect

There are two ways you can design the decoy effect. Firstly, we can look at the different quantities of the same product. Assume you sell sweets and offer two sizes: small and large priced at £2 and £6 respectively.

A study found that 87% would choose the small size. Most likely because of the cost. In this model, your shop would earn (for every 100 customers):

87 X 2 + 13 X 6 = 174 + 78 = £252

Now let’s introduce a third size of sweets, medium, priced at £5. Notice how it isn’t in a linear progression as you might expect. Now in this scenario, 74% of customers will choose the large size, very few (if any) will choose the medium and the rest will choose the small size. The main influence for this is because the large size seems like such a good deal.

In this scenario, the revenue would be:

26 X 2 + 74 X 6 = 52 + 444 = £496.

This pricing strategy shows a 96.8% increase in revenue. This example was shown on the National Geographic channel (with popcorn). You can watch the video below.

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Decoy Effect: Sell Bigger And Better | Decoy Effect in your pricing strategy.