Understanding the Decoy Effects in Consumer Choice
01 Intro
The decoy effect is a fascinating phenomenon in consumer psychology where adding a third option can significantly influence a customer’s choice between two initial options. Let’s explore how this cognitive bias works through the lens of mobile phone plans.
The diagram above illustrates the three different decoy effects on a quality-price grid. The competitor and target products are fixed points, with three distinct regions where placing a decoy product can influence consumer choice.
02 The Basic Setup
Our target phone plan costs thirty euros per month and includes ten gigabytes, while the competitor’s plan offers six gigabytes for twenty euros.
| Target | Competitor | ||
|---|---|---|---|
| Price | 30€ | 20€ | |
| # GB | 10 | 6 |
03 Asymmetric dominance
Asymmetric dominance occurs when we introduce a decoy that’s clearly inferior to our target product:
| Target | Competitor | Decoy | |
|---|---|---|---|
| Price | 30€ | 20€ | 35€ |
| # GB | 10 | 6 | 9 |
Here, the decoy is both more expensive and offers less data than our target, making the target appear as a more rational choice.
04 Attraction effect
When we position the decoy slightly below the target in both price and quality we can observe the attraction effect:
| Target | Competitor | Decoy | |
|---|---|---|---|
| Price | 30€ | 20€ | 28€ |
| # GB | 10 | 6 | 7 |
The decoy’s presence makes the target’s premium features more attractive, despite its higher price point.
05 Compromise effect
When we position the target as the “middle ground” option, in this case by creating a decoy that’s more expensive but also higher quality, the compromise effect occurs:
| Target | Competitor | Decoy | |
|---|---|---|---|
| Price | 30€ | 20€ | 50€ |
| # GB | 10 | 6 | 12 |
By introducing a high-priced option, the target appears as a reasonable compromise between price and features.
Acknowledgement: Based on lecture notes from the winter term 2017/18 lecture Digital Communities at TU Berlin.