Apr 7, 2021

𝐃𝐄𝐂𝐎𝐘 𝐄𝐅𝐅𝐄𝐂𝐓

By Apoorv Tyagi • Issue #9 • View online

Time for a cognitive bias 🧠

(If you visit Starbucks☕ often, make sure to read this till the end)

Price is often the most delicate element for marketing any product, and there’s one SMART pricing strategy that marketers use to get you to switch your choice from one option to a more expensive one.

This strategy is known as a “decoy effect"👻

The decoy effect describes how when we are choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices.

In simple words - when a third option is introduced, a consumer is likely to choose the more expensive of the first two options available to them.

This cognitive bias occurs because our brains don’t evaluate things based on absolute values but instead through inter-group comparisons.

Consumers tend to have a change in preferences between two options when also presented with a third option that is asymmetrically dominated.

This asymmetrically dominated option is a decoy aimed to increase preference for the dominating option – the one marketers really want the consumer to choose.

An option is asymmetrically dominated when it is worse, in all respects, than another option. But, when compared to a expensive of the original two of option, it is worse in some respects and better in others.

In simple words, when there are only two options, people will tend to make decisions according to their personal preference and generally will chose the least expensive of the two choices available.

But when they are offered another strategical decoy option, they will be more likely to choose the more expensive of the two original options💸

For example, when consumers offered a small coffee for €2.50 or a large one for €3.50, most of them chose to buy the former.

But when another decoy option was added – a large €5.00 coffee, most consumers either chose the €3.50 one or the €5 one.

Another example of how Apple uses the decoy effect

Apple has mastered the decoy effect to such an extent that whenever they release any new product they generally offer the 3 variants of that product.

For instance, When Apple unveiled its new iPod, the pricing was as follows:

16GB for $229
32GB for $299
64GB for $399

In other words, you get double the storage capacity for an additional $70.

You also get more features, such as a 5MP camera and iPod Touch Loop.

However, if you opt for double the capacity (32GB to 64GB), you pay an additional $100, but you don’t get any kind of extra features.

Therefore, you might conclude that the 32GB version offers the best value for money.

So, only a few would buy the 16GB version and even fewer would opt for the 64GB version. But, the fact is, the 64GB versions is the decoy to make the 32GB version more appealing and the best option.

How to avoid it

Just by being aware of this cognitive bias is not enough to avoid it because part of the reason why this bias works so well is precisely because it feels rational.

That said, there are still a few strategies out there which you can use to avoid falling into the trap of the asymmetric dominance.

Figure out your preferences ahead of time
Only buy what you really need
Beware of sets of three

👋 That’s it for this week. I hope you enjoyed it.

If you have more suggestions on how can I make this newsletter better for you, I’d love to hear about them as well.

See you on the Internet next Wednesday!

Until then, Stay scarce!

-Apoorv;

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📰 Previous Issue : Debunking YOUR Basic Math Concepts

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By Apoorv Tyagi

𝗔 𝗻𝗲𝘄𝘀𝗹𝗲𝘁𝘁𝗲𝗿 𝗮𝘁 𝘁𝗵𝗲 𝗶𝗻𝘁𝗲𝗿𝘀𝗲𝗰𝘁𝗶𝗼𝗻 𝗼𝗳 𝐏𝐬𝐲𝐜𝐡𝐨𝐥𝐨𝐠𝐲, 𝐓𝐞𝐜𝐡 𝗮𝗻𝗱 𝐒𝐨𝐟𝐭𝐰𝐚𝐫𝐞 𝐄𝐧𝐠𝐢𝐧𝐞𝐞𝐫𝐢𝐧𝐠.

𝗝𝗼𝗶𝗻 𝟭𝟬𝟬+ 𝗺𝗲𝗺𝗯𝗲𝗿𝘀 𝐭𝐨 𝐢𝐦𝐩𝐫𝐨𝐯𝐞 𝐚𝐬 𝐚 𝐝𝐞𝐯𝐞𝐥𝐨𝐩𝐞𝐫 𝗮𝗻𝗱 𝐭𝐨 𝐠𝐞𝐭 𝐭𝐡𝐞 𝐛𝐞𝐬𝐭 𝐭𝐢𝐩𝐬 𝐚𝐧𝐝 𝐚𝐫𝐭𝐢𝐜𝐥𝐞𝐬 𝗱𝗶𝗿𝗲𝗰𝘁𝗹𝘆 𝘁𝗼 𝘆𝗼𝘂𝗿 𝗶𝗻𝗯𝗼𝘅 📩

P.S. It is free (and fun!) :)

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