The decoy effect: Defin­i­tion, how it works and examples

"People always go for a bargain – even when, soberly con­sidered, it actually isn't one at all." This is evident in the use of the decoy effect, also known as the asym­met­ric dominance effect. The cognitive dis­tor­tion phe­nomen­on has been de­lib­er­ately used in marketing and sales ever since it was proven in sales psy­cho­logy ex­per­i­ments. Here you will learn what the effect is and how it boosts the sales of products and services.

The decoy effect belongs to the category of cognitive biases. Like many related phenomena, it causes people to perceive cir­cum­stances dif­fer­ently than they are portrayed in reality. In this specific case, a dis­tract­ing entity (usually another product) serves as the driving force for ma­nip­u­lat­ing the con­sumer­'s choice or behaviour. If a choice between two initial products does not lead to a clear result, adding a third unit as com­par­is­on can drive customers to decide between the two options because the „decoy“ un­der­scores the alleged strengths of one of them.

This cognitive dis­tor­tion consists of adding a third offer that is generally not supposed to be purchased – a decoy – which has con­sid­er­able influence on the sales process. Consumers make up 85 to 95 percent of their pur­chas­ing decisions un­con­sciously and are, therefore, sus­cept­ible to both un­con­scious cognitive dis­tor­tions and de­lib­er­ate external ma­nip­u­la­tion.

American marketing professor Joel Huber and his col­leagues first re­searched and described the decoy effect in 1982. Huber and his team dis­covered that it is easy to persuade consumers to make a choice when wavering in their decision between two products with different prices. This is done by in­tro­du­cing a third decoy product that is higher in quality and/or much more expensive.

The key to a suc­cess­ful decoy is to present a product that is "asym­met­ric­ally dom­in­at­ing," meaning that it is superior in at least one aspect to the com­par­is­on products. Viewed from the per­spect­ive of cognitive psy­cho­logy, one reason this approach works is that the decoy effect suc­cess­fully appeals to the human reward system.

While many examples of the decoy effect can be found across all selling platforms, they all function on the same basic principle.

For the decoy effect to work, the customer must have already chosen a seller or online store. The decoy effect does not work across multiple competing offers.

Within an offer (for example, a sub­scrip­tion), pur­chas­ing decisions can be spe­cific­ally in­flu­enced by initially offering the two con­trast­ing products and then the asym­met­ric­ally dom­in­at­ing decoy product. For sellers, utilising the effect is always a matter of op­tim­ising the shopping cart value and gen­er­at­ing as many sales as possible.

Let’s have a look at an example of making a choice between two wines:

Both wines are appealing to potential pur­chasers. However, the customer is uncertain because Product A is more expensive (a very well-known winery), but Product B offers better quality (an es­pe­cially good vintage). Since the first wine brings in more profit, the seller is naturally more in­ter­ested in selling Product A, even if Product B would be the better choice for the customer.

The seller now utilises the decoy effect and offers the customer Product C, which is a premium product (an es­pe­cially good vintage from a very famous winery) that is even more expensive than Product A. This "decoy“ product auto­mat­ic­ally increases the prob­ab­il­ity that the customer goes for Product A and not Product B. In the rare case that Product C is purchased from the three options, this is also to the benefit of the seller.

Even if the decoy effect may seem easy to recognise, it is very effective due to the high number of pur­chas­ing decisions that consumers make un­con­sciously. Fur­ther­more, the decoy effect is not exclusive to the B2C sector: Even ex­per­i­enced shoppers in the B2B sector are at the mercy of the decoy effect's marketing influence. It is most effective at promoting sales when offers are presented to customers within the smallest possible space. A right moment in the pur­chas­ing process to throw in a decoy effect product can be when the shopping cart is already full by using an algorithm or another function that re­com­mends an asym­met­ric­ally dom­in­at­ing product based on the cart's product selection. This alters the pur­chas­ing decision during the home stretch so that it results in more sales.

The decoy effect has an es­pe­cially strong impact on marketing when it is employed in com­bin­a­tion with the anchoring effect, which can also be utilised for targeted ma­nip­u­la­tion during pur­chas­ing decisions. The anchoring effect works by de­lib­er­ately in­flu­en­cing people's per­cep­tion of numbers and their ability to make as­sess­ments through the use of anchors (specific numbers), without the anchors them­selves providing any sub­stant­ive in­form­a­tion. This effect occurs even when the numbers are com­pletely random.