#38: The Decoy Effect

Bias number 38 is known as the decoy effect. This bias is most prevalent in the decision-making of consumers when presented with three choices, one of which is asymmetrically dominated.

“What the heck does that mean?” I hear you ask. Well, I’ll tell you!

Asymmetrical domination means that, in comparing two options, a third option (otherwise known as the decoy) is used to influence a buyer's choice. The decoy is generally inferior in all ways to one option, or dominated by that option, and is both inferior and superior in various ways (partially dominated) by the second option.

When the decoy is present, consumers are much more likely to choose the dominating option, or the one that is presented as superior in all ways. The point of including the decoy is to influence consumer choice towards a preferred option by presenting a third, unattractive option.

This is often used by manufacturers of products, the sales of which are driven by specific product features and attributes. Technology products such as mobile phones, laptops and televisions are good examples of this.

Buyers who are more price sensitive can be influenced to pay for a more expensive feature-rich product if a third product is offered has some of the desirable features of the more expensive product and costs more than the cheaper product. The “decoy” product leads the buyer to believe he’s getting a good deal by opting for the feature-rich offering, spending more than perhaps he originally intended.

It’s a sneaky little trick pricing strategists use to steer you towards the products they most want you to buy. You leave the John Lewises or Carphone Warehouses of this world, believing you got the best deal on your new gadget.

Everyone’s happy, right?

How does your discovery of the decoy effect and its use to coerce you to buy a particular product affect you? Are you really being empowered by manufacturers to make the best choices when it comes to purchasing products?

You might be reading this, thinking, “Gosh! Why didn’t I think of that? What a great idea!” And then stop to ask yourself if you really want to resort to deceptive tactics in order to make a sale. Is it really a good idea?

Economists and pricing strategists see it more as market research, using what’s known as conjoint analysis to determine the best way forward when new product features or new service delivery strategies are adopted. It helps business owners prioritise the inclusion of features that will make their product more attractive to prospective customers.

This sounds reasonable enough, and it does make good business sense.

It’s in these realms that business becomes less of an art and more of a science. The clever ones having been aware of these tactics for a long time and are using them to their advantage.

If you’ve ever wondered how deep the psychology of business can go, just dive into the psychology of choice. Choice theory provides a framework for modelling social and economic behaviour. Experts in the field of choice psychology analyse these principles all the time to predict what products will sell to which customer segments. So it does make sense for you to invest your time in understanding what motivates people to behave the way they do.

Salespeople armed with this information can probably spot you as you walk through the door. Ask a few well-directed questions, and before you know it, you’re put in a box or two and steered down a particular product path that may lead you to your intended destination, but often leads you down a totally unexpected path.

If you’re willing to be led, that is.

As a buyer, it pays — literally — to do your research before you walk through the shop door and hand your credit card over. Don’t be frightened to ask all sorts of awkward questions. In fact, ask the salesperson directly why one product is more expensive than the other. See what kind of story she gives you. Crosscheck it with your own research to see if it tallies.

On the other hand, there’s nothing wrong with deploying tactics to sell the best product or identifying what customers want. Every good business needs to give this some consideration. The businesses that are hugely successful invest a lot of time, money and effort in continuous market testing to ensure their products meet consumer demands.

One of the biggest challenges businesses face is trying to identify big enough customer demand trends to produce products that meet the demand. This is the failing of many companies who have great ideas but don’t get very far. If there isn’t the demand for your product, and if you don’t have sufficient enough marketing muscle to drive demand, you may be barking up a stump masquerading as a tree.

Deflating, I know, but it’s the very thing that stops new businesses from getting much further than the drawing board.

So, what can you do?

If you are an innovator developing your own products, expect your business to take a minimum of five years to get off the ground. That’s being optimistic. It takes time to develop a relationship with prospective customers that enlightens you to their real needs.

If you are developing products already in high demand, engage in market research to understand where and how to position your products against the competition. Remember that there is always room for your particular brand of xyz widget, as long as you develop the product with the buyer in mind. Trying to force an unwanted product upon people doesn’t work, despite your insistence upon it being a great idea. In fact, this kind of attitude drives customers away.

Finally, remember that sales, at its best, is an act of service. When you focus less on your needs and more on your customers’ needs, whether they part with money or not, you leave your customers with a warm, fuzzy feeling. They’ve been considered, heard and regarded. They may not buy from you today, but they'll remember your efforts, and they'll return when they need you.

It's the little things that add up to a lot. That’s the stuff of business brilliance.

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