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Complex Numbers #1016405 added August 31, 2021 at 12:04am
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The Real Decoy
Eons ago, in the Before Time, I wrote a blog entry that mentioned the Decoy Effect. Here it is if you're interested: "Gindex"  . I don't expect anyone to remember this. Hell, I barely remembered it; I had some vague feeling that I'd talked about it before so I did a search and that was the only entry that came up.
I just wanted to verify that I hadn't linked this particular article, which even predates that entry. Apparently, I hadn't. So here it is.
Price is the most delicate element of the marketing mix, and much thought goes into setting prices to nudge us towards spending more.
Everyone knows, or at least should know, about the bullshit that is the "sale." Nevertheless, it works. Say you want a widget. It's $100, which is outrageous. So you wait. A couple weeks later, you see: Widget Sale! 50% off! And you buy a widget for $50 plus tax.
Thing is, the widget cost the store $20. So you're still getting boned. Yeah, I know, they gotta make a profit, but really?
There’s one particularly cunning type of pricing strategy that marketers use to get you to switch your choice from one option to a more expensive or profitable one.
It’s called the decoy effect.
Gosh wow, I've never heard of that! Except it's in the headline.
The article goes on to provide a retail example, but it also applies to menu options at a restaurant, as I noted in that long-ago entry.
The decoy effect is defined as the phenomenon whereby consumers change their preference between two options when presented with a third option – the “decoy” – that is “asymmetrically dominated”. It is also referred to as the “attraction effect” or “asymmetric dominance effect”.
You can tell that those phrases weren't marketed to consumers because they're from Latin roots.
What asymmetric domination means is the decoy is priced to make one of the other options much more attractive. It is “dominated” in terms of perceived value (quantity, quality, extra features and so on). The decoy is not intended to sell, just to nudge consumers away from the “competitor” and towards the “target” – usually the more expensive or profitable option.
Not sure why they'd necessarily push people to the more expensive option, unless it's something that confers bragging rights, like a car or a fine scotch. Usually the company only cares that they make more profit. If you can make $20 profit on a $100 woogie, or a $10 profit on a $200 woogie, you want to sell more of the $100 woogies.
The article then describes an actual psych experiment where this was demonstrated. However, the experiment, in my view, suffers from the same bias as almost every psych experiment: their guinea pigs weren't chosen at random from the general population, but from college students.
Still, the results were interesting and changed the way businesses priced things.
The decoy effect is thus a form of “nudging” – defined by Richard Thaler and Cass Sunstein (the pioneers of nudge theory) as “any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options”. Not all nudging is manipulative, and some argue that even manipulative nudging can be justified if the ends are noble. It has proven useful in social marketing to encourage people to make good decisions such as using less energy, eating healthier or becoming organ donors.
I can't say I know a lot about economics (anyone who can say that is probably lying, to themselves or to others), but I've been told that one of the foundational principles of economics is: people respond to incentives. Those incentives can be financial, or, in the case of my town switching to single-stream recycling some years back, time savings.
Another example provided in the article talks about pricing a magazine subscription. I don't know; when I went through the example, I didn't choose the "forced" option (actually I didn't choose any of the options because I'm a cheap bastard, but I mean hypothetically). This is because, in that hypothetical situation where you can get online only, print only, or online and print, I have no interest whatsoever in print options because I get enough mail as it is, and most of it ends up in the aforementioned recycle bin without having been read.
The next example is more representative, I think, of peoples' daily choices.
Consider the price of drinks at a well-known juice bar: a small (350 ml) size costs $6.10; the medium (450 ml) $7.10; and the large (610 ml) $7.50.
Which would you buy?
If you’re good at doing maths in your head, or committed enough to use a calculator, you might work out that the medium is slightly better value than the small, and the large better value again.
But the pricing of the medium option – $1 more than the small but just 40 cents cheaper than the large – is designed to be asymmetrically dominated, steering you to see the biggest drink as the best value for money.
Putting aside for a moment the fact that any of those prices is way too much to pay for a drink that isn't beer, I have to admit I don't see the point here. Even people who suck at math can figure out that the large is nearly twice the size as the small for a modest increase in price (why everyone does that probably has to do with cup and labor costs), and will tend to get the large. Unless - like with me at a coffee shop perusing the tea prices (because I don't like coffee) - you decide that's just way too much drink, and pay the higher unit cost for a small because that's really all you want.
Still, the decoy effect is real; it's marketing and applied psychology. I'd be willing to bet, though, that there are plenty of people it's lost on. All I'm saying is: be aware of it, and buy what you want anyway; just know that what you "want" is, as always, being influenced by external forces. |
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