The Decoy Effect: Why is it a Game-changer in Retail?

Ecommerce merchants face no shortage of challenges when it comes to attracting the right audience to their online retail store. When they succeed, they’re faced with new types of challenges—such as the ease with which online shoppers can dig around for better deals—that can easily obliterate their chances of closing a sale.

When a shopper reaches your pricing page, you’ve reached the most critical point in their buyer journey: Will they choose to buy from you, or not? You can’t leave their choice up to chance, so you must do everything you can – through high-quality product images, enticing product descriptions and more – to steer them toward choosing in your favor.

But what if there were more you could do to close the deal?

Driving Sales With the Decoy Effect

The decoy effect is a strategy marketers can use in order to drive sales – but not just any sales. It means attracting your target audience to the buying option you most want them to take.

Here’s how it works: Let’s say your product pricing page offers two pricing options. There’s the less expensive price for the item with fewer features, or the more expensive price for a more valuable item. Faced with two options like these, most buyers will go with the less expensive option.

This isn’t the case when there’s a third option in the mix. By adding a third option, or a decoy, that is priced closely to the more expensive of the first two options, suddenly that initially expensive option seems like the no-brainer choice that offers the most “bang for the buck.”

You can use the decoy effect to nudge customers toward the option you want them to take. For example, check out how The Economist magazine lured people toward the more expensive subscription option:

Faced with the choice to pay $59 for an online-only option or $125 for a print subscription, most new subscribers would opt for the less expensive option. But $125 for both online and print? Now that seems like a great deal!

Implementing Decoy Marketing

Regardless of what you’re selling, you can use decoy marketing to help drive the sales you want. Here’s how to do it:

  1. Pinpoint the product or service you want sell more of. For example, let’s say you’re selling a portable essential oil diffuser that comes with three options: Option A is a simple diffuser. Option B is a diffuser that has a timer. Option C has a timer and colored lights. Diffuser C is the one you decide you want to sell more of, and you want to sell it for $40.

 

  1. Include three pricing options. This is a must-do if you want to employ decoy pricing in order to sell more of the item you chose.

 

  1. Strategically price the three options. The one you want to sell more of seems most reasonable. In this case, you’ve already priced Diffuser C at $40. To make this seem like the most reasonable option, you would price Diffuser A at $20, and Diffuser B at $35.

 

  1. Make your pricing choices intentionally. Remember, you’re not trying to sell your decoy (which in this case would be Diffuser B). You’re trying to use your decoy to make the item you want to sell seem reasonably priced by comparison and thus more valuable.

 

  1. Price the decoy close to the cost of the item you want to sell. Notice how the difference in price between the target item ($40) and the decoy ($35) is smaller than the jump between the least expensive option and the target item. This is intentional. By pricing the decoy close to the target item you want to sell more of, you make choosing the target item seem like a no-brainer.

 

Increasing Your Profit Margins

You’re the boss when it comes to which item(s) you want to sell more of, and which price points you offer for alternative options. By including two additional offerings that are intelligently priced alongside the one you’re looking to sell more of, you can use decoy marketing to quickly increase your profit margins.

 

Keep in mind that decoy marketing is based on a practice of exploiting natural psychological tendencies human beings have that influence the ways they deem product value. There are a number of other psychological principles in behavioral economics that can guide marketers to making significant improvements in their ecommerce profits through calculated changes to wording, the design of their incentives and more.

If you liked this article, you might also enjoy:

Choice architecture in Retail – 3 ways to use it

Sunk cost fallacy in E-commerce

How to Use Price Elasticity in E-commerce to Improve Profit Margins

 

Get in touch with us to explore additional ways you can use these methods and others to increase your profit margins.

To read more about the relation between behavioral economics and marketing,
and demonstrate how creative marketing organizations can leverage the fundamentals of behavioral economics
download our eBook: Behavioral Economics as a Key Marketing Driver. Contact us, today.

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