There is a product pricing strategy used by businesses called the “decoy pricing effect” strategy, which we come across in our everyday lives, but somehow, we fail to notice it simply because we are not aware of it. “The Economist” which is one of the worlds famous business magazines uses the same strategy to attract customers to use them to increase their revenue. Now that we have talked about it already let us understand what exactly is a decoy strategy and how do businesses psychologically manipulate their customers to fetch better opportunities.
Decoy strategy is the strategy in which the consumer has a strong preference in the two options but when the seller adds one more option with the other two then the consumer’s decision gets changed or altered. Sounds absurd, right? Well, that’s what we as customers have been doing while making so-called smart buying decisions. Let’s take a look at an example:
If a seller sells sweet corn for Rs. 30, 80, 100 for the small, medium, large sizes respectively. If there were only two choices of small and medium, then the customer can decide easily that if he/she thinks that small will be too small for her/him then they will take the medium one, but, now there are three options of small, medium and large and the price difference in small and the medium is big as compared to medium and large, so if the customer thinks that small will be too small then they will jump to the medium one, but definitely, a thought of buying the large one will come to the consumer’s mind as there is a minuscule difference in the prices of both the medium and large, and if they buy the large one they will get a bigger quantity in a marginally lesser amount of money. This is the consumer’s point of view, but in the sellers’ point of view, they are exploiting the decoy strategy to attract the consumers towards the large cup of sweet corn. In other, the seller of the sweet corn has no real intentions of increasing the sales of the medium-sized cup but to use it as a means to increment the sales of the larger cup.
Now, the same strategy was used by The Economist Magazine, but at first, it went wrong:
That was the time when the world-famous magazine ’The Economist’ came with its first offers of subscriptions and they wanted to provide both the online web edition and the hardcopy edition to their customers. And, then they came up with two subscription plans which were:
- For $59 they will provide one year of access to the online articles
- And, in one year access to both online articles along with the hardcopy edition of The Economist in just $125
The company thought that the customers would be attracted towards the second option, but what happened was completely opposite to what everyone was thinking.
Most of the customers preferred the first option over the second one. Everyone started thinking Why is it so?
But soon, they understood that there was some problem with their pricing system.
Let’s take a look at the success of the magazine
Now, they added one more option with the other two of getting a one-year subscription to hardcopy edition for $125.
All the consumers thought that the offer they added recently was of no use and no one will buy that as they are getting a far better offer in the same amount of money, but this is the most important part of pricing.
The Decoy effect did its work
Now, the customers started comparing between the two offers which were of the same price rather than comparing the only online access plan and only hardcopy edition plan. And, the decision of the consumers was pretty clear.
Now, people started buying the plan which is of more cost and which gave a good amount of profit to the magazine company and its sales rose up to 43% after using this decoy strategy.
We think the decision of buying is simple but it is as difficult as we think it is simple
The context is more powerful than what we understood and it also helps in increasing the profit of the company’s products and its services. When the company gives too many options to the consumers to choose between, then it becomes difficult for the consumers to choose between the options given to them. If this situation comes all the consumers always prefer that option in which they are receiving more quantity in less amount of money.
How does the decoy strategy work?
The decoy strategy or the decoy pricing effect firstly confuses the customers and then convince them that the best option for them is the one which provides a good amount of profit to the company and provide them with the impression that they have made the right decision, thus we can say that this strategy is a manipulating one. Basically, the customer is fooled into thinking that he has made the smartest decision while the company reaps the benefits of his decision.
Let us take a look at one more example of the same effect
A popcorn seller sells a small tub of Rs.150, a medium tub of Rs.300 and a large tub of Rs.340.
What do you the customer would be attracted towards?
If a person thinks that the small one will be too small for him then they will directly jump to the decision of purchasing the large one (which is for Rs.340) simply with the manipulation that the marginal difference between the medium tub for Rs 300 and the large tub is irrelevant in comparison to the rise in quantity. That is, the quantity change holds more marginal importance than the price change.
So, basically, this is how bug business houses exploit this some economic decoy effect to change the mind of their consumers into extracting the best possible deal. Feeling tricked, huh?