When thinking of conversion rate optimization, people often jump right to page design; however, the psychology behind decision-making often plays an equally critical role.
A powerful psychological tool in a marketer’s arsenal is the decoy effect, a strategy that nudges customers toward a preferred choice by reframing how options are presented.
By leveraging this effect, marketers can influence buying decisions without changing the product itself, often leading to higher conversions and increased revenue.
Let’s explore what the decoy effect is, how it works, and how you can use it to guide customer decisions.
When faced with two similar choices, we often hesitate. Imagine standing in line at a coffee shop, debating between a small coffee for $2.65 and a large coffee for $3.25. Both may seem reasonable, but you can't decide.
Then, you notice a medium coffee for $2.95 on the menu. This option is only a few more ounces than the small, but close in price to the large. Suddenly, the large coffee looks like a better deal. You choose it without much thought.
This scenario illustrates the decoy effect, a tactic that can guide our choices as consumers by offering a third, less attractive option.
The decoy effect is a popular marketing tactic since our brains prefer to evaluate things through comparison. When we see a weak option next to a stronger one, the stronger choice looks good. This comparison distracts us from comparing the two original choices on their own merits. The decoy tilts the playing field and eases our hesitation.
Behavioral economists, such as Dan Ariely, have studied this effect to show the influence of small changes in how options are presented. People tend to choose the option that "wins" over the decoy, even if, without the decoy, they might have chosen differently.
In our coffee example, the medium coffee serves as the decoy as it is less appealing than one of the original two options (more expensive than a small and less coffee than a large). The role of the decoy here is to nudge consumers toward purchasing the large.
Without the decoy, both original choices seem balanced. The introduction of a medium option that offers less coffee for a comparatively small difference in price suddenly makes the large coffee the preferred choice in terms of value for the money.
One way you'll often see the decoy effect leveraged is when presented with subscription plans.
The sign of a decoy in use is when one option is clearly worse than another at a similar or higher price, making the "better" option stand out.
While some Mint Mobile customers may find value in a shorter time commitment, you'll notice that at the 3-month level, multiple plans (e.g., 15GB and 20GB) cost the same monthly amount as the unlimited plan.
If unlimited data is offered at the same price as a limited-data plan, those limited-data plans become "asymmetrically dominated." In other words, they have fewer benefits and no cost savings than the unlimited option.
These inferior choices can nudge customers to pick the unlimited plan since it appears to be the best value.
Now that the unlimited plan is a deal, why not take advantage of their offer and lock in the 12 months at the same price?
This pricing setup helps demonstrate a decoy scenario as the less appealing (and similarly priced) options serve as a benchmark that makes the unlimited plan and 12-month options look like a far better deal, guiding the customer's decision.
Now let’s consider Netflix. While Netflix’s pricing tiers are often cited as an example of the decoy effect, it doesn’t fully qualify. A true decoy requires one option to be clearly worse than another at a similar or higher price, which is not currently the case in their offerings.
Netflix pricing shows each tier has a distinct combination of features and trade-offs:
However, Netflix could create a decoy by reducing the number of devices or resolution quality offered in the Standard plan while keeping the price at $15.49.
This would make the Premium plan, at $22.99, feel like the best value for its superior features. By strategically positioning one plan as less appealing, Netflix could encourage more upgrades to their Premium tier.
Now that you understand what the decoy effect is and how to identify it, don't be surprised when you see it the next time you shop for electronics, look at a restaurant menu, or book travel.
The decoy effect can be a powerful tactic to guide your audience toward a preferred option, but it must be used thoughtfully.
Start by assessing your target audience and market context. If customers perceive the tactic as manipulative, it could damage their trust in your brand.
To determine whether introducing a decoy option is worthwhile, analyze customer behavior. Are they hesitating on pricing pages? Hovering between options without committing? Abandoning the checkout process at a higher-than-expected rate?
These patterns, along with user testing and heatmap analytics, can indicate a need for a stronger nudge toward a specific choice.
Once you’ve identified the opportunity, experiment with introducing a decoy and monitor its impact on conversions. However, always ensure that the tactic aligns with your brand values and provides a genuine sense of value to your customers.
The decoy effect isn’t just about increasing revenue. it’s about guiding customers toward a decision that feels logical and valuable to them while supporting your business goals.
By creating pricing structures or product offerings that help customers see value more clearly, you can reduce decision-making friction and increase conversions.
As marketers, the key is to test, analyze, and iterate.
Use your data to identify where decision-making roadblocks exist, and consider whether a decoy could nudge customers toward the option you want them to choose. Approach the tactic with transparency and intent, and you'll find that the decoy effect can be a powerful ally in creating win-win outcomes for both your business and your customers.
Now, go experiment and see how small changes in choice architecture can lead to big results.
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