Popcorn & The Decoy Effect

Most of us think of movies whenever we hear the word popcorn. It would be right to say that a movie night would be incomplete without popcorn buckets. In this blog, let’s explore how marketers employ “The Decoy Effect” to sell us larger portions of popcorns.

Now let’s consider the following menu at a popcorn shop:

• Small tub — Rs. 150
• Large tub — Rs. 350

It has been observed that when presented with the above two options, people are more likely to purchase the smaller portion. This could be because of their personal needs at the time or because they feel that the large tub is too expensive. Now, let’s introduce a third serving size in this menu:

• Small tub — Rs. 150
• Medium tub — Rs.300
• Large tub — Rs. 350

Which one are you more likely to order now?

Customers are more likely to buy the large tub from this new menu because they see more value for an additional expense of Rs.50. Hence, introducing a third option in the menu (called the “decoy”) encouraged consumers to choose the expensive option. This technique of introducing a “decoy” to encourage consumers to buy relatively expensive items is called the “Decoy Effect.”

Definition

The decoy effect, also known as the asymmetric dominance effect, is a phenomenon where consumers tend to have a specific change in preference between two options when presented with the third option that is “asymmetrically dominated.” An option is said to be asymmetrically dominated when it is inferior in all respects to one option. Therefore, this asymmetrically dominated option is a decoy that helps increase the consumer preference for the dominating option (the option that is superior in all respects). The key here is to price is decoy close to the key product (the high-priced option)

In the above case, the medium tub is inferior to the large tub in all respects. Thus,

• medium tub — asymmetrically dominated option(decoy)
• large tub — dominating option (one whose preference is increased)

Interestingly, one might think that introducing another alternative is likely to reduce the market share of the alternatives already present. This assumption is true in most cases and is referred to as “regularity.” However, the decoy effect is a violation of the assumption of “regularity” as it increases the market share of an already existing option.

How to implement the decoy effect?

You can follow the next five simple steps to add the decoy effect to your pricing:

1. Choose your key product: This is the product that you want to sell more.
2. Structure your key products: Your key product should contain more benefits than the other products and should be higher priced.
3. Create a decoy: Add a product to your set of products such that your key product asymmetrically dominates it.
4. Have at least three offers: This gives customers more variety to compare and choose from. However, please don’t give a consumer more than 5 choices as it may decrease your decoy's effectiveness.
5. Price the decoy close to your key product: The decoy must have the same or a slightly lower price.

Another example — The Economist magazine

The Economist is an international weekly newspaper that focuses on current affairs, international business, politics, and technology. One of the best examples of the decoy effect is the old subscription page of The Economist. They offered 3 different types of subscription:

• Web subscription — $59
• Print subscription — $125 (decoy)
• Web and Print subscription — $125 (dominating)

The first offer of $59 seems reasonable. The print subscription seems a bit expensive. But the third option, web+print, for the same price as the print-only subscription?

The majority of the customers are more likely to go for the web+print subscription as it leads us into believing that we’re getting the web version for free. And who doesn't like free goodies? However, if the decoy was absent, customers were more likely to chose the web-only subscription.

Conclusion

Decoys are a type of behavioral nudge that can subconsciously alter the way we make decisions. Another tricky thing about the decoy effect is that being aware of its existence probably isn't enough o avoid it. After all, part of why this bias works is precisely because it feels rational. However, figuring out our preferences in advance and being aware of sets of three might help you avoid bias.

Thanks for reading, and let’s try our best to be rational consumers!