How To Make More Profit With Decoy Effect
Price is a crucial element of marketing. It is one of the main factors that consumer considers before choosing a product. So, it decides the future and acceptability of the product. To convince customers to choose a more expensive product, marketers use various strategies. One of such strategies is “The Decoy effect”.
This term may be new for many readers. So in this article, we will discuss in detail about “The Decoy Effect”. So, let us proceed.
What is the Decoy effect?
In the decoy effect, the customers will tend to have a change in preference between two options when they get a third option that is asymmetrically dominated.
We can say that when there are only two options, customers will tend to make decisions according to their personal choices.
So, when consumers are offered another decoy option, they will be more likely to choose the more expensive of the two original options.
For example, in this video, the Decoy effect is explained in detail with the help of an example. Watch this video to understand the Decoy effect in detail.
The psychology behind the decoy effect
Do you know that the decoy effect is related to human psychology?
It is a clever strategy used by businesses. They apply this trick intentionally to get more benefits in their business. The interesting thing is that the customer is even not able to know that it is the trick of businesses to sell their product.
The decoy effect makes people believe that one product has more value than other product. But in reality, they are just getting trapped to buy the expensive one.
Generally, when the customers have only two options- cheap & expensive, they decide according to their requirement at that moment. But when they get a third choice, a strategically priced decoy, the customers are more likely to choose the expensive one of the other two options.
Let us take the example of the iPhone 11 pro max.
Here, by default, consumers will ignore the first option. The customers will now focus on the other two options. The expensive option will look like it offers a high value as compared to the decoy price item. If a customer has already made his mind to buy a better iPhone, he would love to prefer the expensive one as it offers twice the storage for quite a higher price than the decoy.
Decoy pricing
Most ads of the products appear as three options. This is due to the reason that consumers tend to see the cheapest one as inferior and the high priced item as highly expensive. So, here marketers introduce another option with medium-priced value.
Decoy pricing strategy boosts the sale and increases profit. The Decoy price is set in a way that it has a higher value than the cheaper product and a lower price than the expensive product.
In the example given below, consumers have two choices: Small and Large. Most of the consumers will prefer the Small popcorn box as they will find it economical.
In the second case, the customers have now three options in front of them: Small, medium and large. Here, the medium-sized popcorn box acts as the decoy priced item. This makes the consumers believe that the Large popcorn of $8 is more economical when compared with the other two options.
How Decoy effect increases revenue?
The main purpose of the Decoy effect is to make customers choose the product variant that is expensive as compared to other options. When a customer decides to go for the expensive product, there is a better increase in sales and revenue. Therefore, in turn, increases the profit produced by the product.
Many Small, Medium and Large scale industries use the decoy effect as their marketing strategy to increase their sales revenue and profit.
For example, check out how Netflix India uses the decoy effect while offering subscription plans.
Consumers who prefer to watch shows and movies, they will prefer the first option. Every other user will reject that option. Now, the users have only three options in front of them. The “Basic Plan” is easily rejectable because it offers almost the same features as the “Mobile Plan”.
Now the option for the users has been narrowed down to the “Standard Plan” and the “ Premium Plan”. Here, the Standard Plan acts as a Decoy by offering higher features than a Basic Plan at a price lesser than the Premium Plan. When the consumer reaches this stage, he is more likely to choose the Premium plan. This is because this plan offers ultra HD content and allows you to use four screens at a time. On the other hand, the Standard Plan only allows 2 screens and HD content.
How to implement the Decoy effect
Every business is nowadays trying to use the power of the decoy effect to increase their sales and profit. Follow these simple steps to add the decoy effect to your price offering:
- Firstly, choose your key product. Always keep in mind that it should be popular among your customers.
- You need to structure your key product very well. Remember that it should contain more benefits than the other products, and higher priced.
- Next step is to create a decoy. Your goal should be to make the decoy asymmetrically dominated by your key product. It should result in increasing your key product attractiveness as a result.
- We recommend to have you at least three offers. However, don’t add more than five as it will not serve your purpose.
- Set the price decoy close to your key product. You can choose the same or slightly low price.
Conclusion
The decoy effect is a scientifically proven marketing strategy. It influences the customers towards buying the high priced profitable product. You can use it in any type of business. Implement this strategy in your business and witness the benefits.
Checkout These 5 Tools Everyone In The Digital Marketing Industry Should Be Using
What are your views on the decoy effect? What according to you is the biggest benefit of this marketing strategy? How businesses can implement this strategy more effectively?
Share with us in the comment section.
To read more about decoy effect you can also refer to Wikipedia here
Originally published at http://www.abaxsoft.com on September 30, 2020.
