Business Daily Media

how you are influenced to choose without really knowing it

  • Written by Gary Mortimer, Associate Professor in Marketing and Consumer Behaviour, Queensland University of Technology

Price is the most delicate element[1] of the marketing mix, and much thought goes into setting prices to nudge us towards spending more.

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[2].

Imagine you are shopping for a Nutribullet blender. You see two options. The cheaper one, at $89, promotes 900 watts of power and a five-piece accessory kit. The more expensive one, at $149, is 1,200 watts and has 12 accessories.

image Which one you choose will depend on some assessment of their relative value for money. It’s not immediately apparent, though, that the more expensive option is better value. It’s 50% more powerful but costs almost 80% more. It does have more than twice as many plastic accessories, but what are they worth? Now consider the two in light of a third option. image This one, for $125, offers 1,000 watts and nine accessories. It enables you to make what feels like a more considered comparison. For $36 more than the cheaper option, you get four more accessories and an extra 100 watts of power. But if you spend just $24 extra, you get a further three accessories and 200 watts more power. Bargain! You have just experienced the decoy effect. Asymmetric dominance 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”. 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. The effect was first described by academics Joel Huber, John Payne and Christopher Puto in a paper[3] presented to a conference in 1981 (and later published in the Journal of Consumer Research[4] in 1982). They demonstrated the effect through experiments in which participants (university students) were asked to makes choices in scenarios involving beer, cars, restaurants, lottery tickets, films and television sets. In each product scenario participants first had to choose between two options. Then they were given a third option – a decoy designed to nudge them toward picking the target over the competitor. In every case except the lottery tickets the decoy successfully increased the probability of the target being chosen. These findings were, in marketing terms, revolutionary. They challenged established doctrines – known as the “similarity heuristic[5]” and the “regularity condition[6]” – that a new product will take away market share from an existing product and cannot increase the probability of a customer choosing the original product. How decoys work When consumers are faced with many alternatives, they often experience choice overload – what psychologist Barry Schwartz has termed the tyranny[7] or paradox of choice[8]. Multiple behavioural experiments have consistently demonstrated[9] that greater choice complexity increases anxiety and hinders decision-making. In an attempt to reduce this anxiety, consumers tend to simplify the process by selecting only a couple of criteria (say price and quantity) to determine the best value for money. Through manipulating these key choice attributes, a decoy steers you in a particular direction while giving you the feeling you are making a rational, informed choice. The decoy effect is thus a form of “nudging[10]” – 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[11]. It has proven useful in social marketing to encourage people to make good decisions[12] such as using less energy, eating healthier or becoming organ donors. Read more: 'Nudging' people towards changing behaviour: what works and why (not)?[13] In the market We see decoy pricing in many areas. A decade ago behavioural economist Dan Ariely[14] spoke about his fascination with the pricing structure of The Economist[15] and how he tested the options on 100 of his students. In one scenario the students had a choice of a web-only subscription or a print-only subscription for twice the price; 68% chose the cheaper web-only option. They were given a third option – a web-and-print subscription for the same price as the print-only option. Now just 16% chose the cheaper option, with 84% opting for the obviously better combined option. In this second scenario the print-only option had become the decoy and the combined option the target. Even The Economist was intrigued by Ariely’s finding, publishing a story about it entitled “The importance of irrelevant alternatives[16]”. Subscription pricing for The Australian[17] today replicates this “irrelevant alternative”, though in a slightly different way to the pricing architecture Ariely examined. image Why would you choose the digital-only subscription when you can get the weekend paper delivered for no extra cost? In this instance, the digital-only option is the decoy and the digital+weekend paper option is the target. The intention appears to be to discourage you from choosing the more expensive six-day paper option. Because that option is not necessarily more profitable for the company. What traditionally made print editions profitable, despite the cost of printing and distribution, was the advertising they carried. That’s no longer the case[18]. It makes sense to encourage subscribers to move online. Not all decoys are so conspicuous. In fact the decoy effect may be extremely effective by being quite subtle. Consider the price of drinks[19] 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. So have you just made the sensible choice, or been manipulated to spend more on a drink larger than you needed?

References

  1. ^ most delicate element (www.forbes.com)
  2. ^ decoy effect (www.intelligenteconomist.com)
  3. ^ in a paper (apps.dtic.mil)
  4. ^ Journal of Consumer Research (dx.doi.org)
  5. ^ similarity heuristic (www.researchgate.net)
  6. ^ regularity condition (www.researchgate.net)
  7. ^ tyranny (www.scientificamerican.com)
  8. ^ paradox of choice (psmag.com)
  9. ^ have consistently demonstrated (www.sciencedirect.com)
  10. ^ nudging (www.behavioraleconomics.com)
  11. ^ justified if the ends are noble (blogs.lse.ac.uk)
  12. ^ to make good decisions (www.researchgate.net)
  13. ^ 'Nudging' people towards changing behaviour: what works and why (not)? (theconversation.com)
  14. ^ Dan Ariely (danariely.com)
  15. ^ The Economist (www.economist.com)
  16. ^ The importance of irrelevant alternatives (www.economist.com)
  17. ^ The Australian (www.theaustralian.com.au)
  18. ^ no longer the case (home.kpmg)
  19. ^ price of drinks (www.aussieprices.com.au)

Authors: Gary Mortimer, Associate Professor in Marketing and Consumer Behaviour, Queensland University of Technology

Read more http://theconversation.com/the-decoy-effect-how-you-are-influenced-to-choose-without-really-knowing-it-111259

Business Today

1 in 6 US kids are in families below the poverty line

The official child poverty rate is about the same today as in 1967.More Than Words Photography by Alisa Brouwer/Moment Open via Getty ImagesCC BY-NDIn the United States, children are more likely to experience poverty than people o...

Hunt and Brew launches Australia-first cold brew coffee

Australian boutique coffee maker Hunt and Brew has announced it will be sourcing the beans for its new “Australia” cold brew coffee from far north Queensland in a move that will make the company one of the largest buyers of ...

What you need to know about the Defense Production Act – the 1950s law Biden invoked to try to end the baby formula shortage

Biden invoked the Defense Production Act to help end the shortage of baby formula. AP Photo/David J. PhillipU.S. President Joe Biden on May 18, 2022, announced he is invoking the Defense Production Act to help end the shortage of ...

Baby formula industry was primed for disaster long before key factory closed down

Cities are trying to address the baby formula shortage with community drives.AP Photo/David J. PhillipThe conditions that led to a shortage of baby formula were set in motion long before the February 2022 closure of the Similac fa...

Utilising communication tech to alleviate employee burn out

Hybrid work solidified into the business model in 2021 – plain and simple. Jabra research revealed 42 per cent of employees last year requested leadership to help make their virtual workspace more comfortable. Employees are ...

Space Machines readies for liftoff securing launch services deal with SpaceX

SpaceX to carry Space Machines' Optimus Orbital Transfer Vehicle as part of its April 2023 mission. Optimus is one of the largest spacecraft built in Australia and furthers Australia’s sovereign capabilities toward in-space...

Business Daily Media Business Development

the supermarket business model is too fragile to shield customers from rising food prices

Shutterstock/photocriticalFood prices, like almost everything else, are rising fast. There have recently been warnings of “apocalyptic” costs, and a declaration that the “e...

Lisa Jack, Professor of Accounting, University of Portsmouth - avatar Lisa Jack, Professor of Accounting, University of Portsmouth

How soaring inflation can be particularly harmful for young people

Shutterstock/SpeedKingzInflation rates have become almost impossible to ignore. In the UK, inflation has soared in recent months, now reaching 9% – the highest rate for 40 years. The B...

Shampa Roy-Mukherjee, Associate Professor in Economics, University of East London - avatar Shampa Roy-Mukherjee, Associate Professor in Economics, University of East London

it won't control interest rates and inequality will widen

The UK local elections in May saw gains for nationalists in Scotland and Northern Ireland, raising the prospect of increased debates over the future make-up of the country. In Scotland, Firs...

Eoin McLaughlin, Senior Lecturer in Economics, University College Cork - avatar Eoin McLaughlin, Senior Lecturer in Economics, University College Cork

Hunt and Brew launches Australia-first cold brew coffee

Australian boutique coffee maker Hunt and Brew has announced it will be sourcing the beans for its new “Australia” cold brew coffee from far north Queensland in a move that will make t...

NewsServices.com - avatar NewsServices.com

Utilising communication tech to alleviate employee burn out

Hybrid work solidified into the business model in 2021 – plain and simple. Jabra research revealed 42 per cent of employees last year requested leadership to help make their virtual wo...

David Piggott, Managing Director ANZ at Jabra - avatar David Piggott, Managing Director ANZ at Jabra

Space Machines readies for liftoff securing launch services deal with SpaceX

SpaceX to carry Space Machines' Optimus Orbital Transfer Vehicle as part of its April 2023 mission. Optimus is one of the largest spacecraft built in Australia and furthers Australia’...

Business Daily Media - avatar Business Daily Media



NewsServices.com

Content & Technology Connecting Global Audiences

More Information - Less Opinion