Use the Decoy Effect to Sell More
By: Ramsay Lewis
Tags: Marketing, Business, Startups, Psychology, Science

How to Apply the Decoy Effect

You can apply the effect to your marketing — it could help you increase your profits and sales of some products. You would first determine what thing you want to sell more of. This is the “target” product. Then, you would create an option that is worse than that option, but not worse than all the options.

An example for SaaS companies

For example, imagine you are a SaaS company. You sell have three subscription options:

Basic: for $20 a month, the customer gets four product features.

Professional: for $100 a month, the customer gets eight product features.

Enterprise: for $200 a month, the customer gets 12 product features.

Imagine you want to increase the proportion of your customers choosing the Professional option instead of the Basic option. The target product is the Professional subscription option. You could add a decoy to the product spread that makes the Professional subscription look more valuable. So, for example, you might add a “Professional lite” subscription:

Basic: for $20 a month, the customer gets four product features.

Professional Lite: For $95 a month, the customer gets five product features.

Professional: For $100 a month, the customer gets eight product features.

Enterprise: for $200 a month, the customer gets 12 product features.

The Professional Lite option is a decoy because it’s inferior to the Professional option. It doesn’t give you many extra features, but it costs almost the same as the Professional. Customers would be more likely to go for the Professional option because they can see that it adds quite a bit more value for not much extra money.

Now imagine your target is the Enterprise subscription. You could change the options such that it appears to be more valuable in comparison:

Basic: for $20 a month, the customer gets four product features.

Professional: For $100 a month, the customer gets eight product features.

Enterprise Lite: For $195 a month, the customer gets nine product features.

Enterprise: for $200 a month, the customer gets 12 product features.

Adding the Enterprise Lite option highlights the value of the Enterprise option because you can get many more features for only $5 extra a month. It makes that option much more attractive to customers. Including the Enterprise Lite option would likely increase the proportion of customers who would purchase the Enterprise option.

Other applications

There are tons of other contexts in which you could use this effect.

Coffee. You sell three sizes: small, medium, and large. Your target is the large size option. Make the price of the medium size close to the large size, and you will probably start selling more of the large size.

Real estate. You are a realtor and you want to highlight the value of a particular house to a client. Emphasize the value by creating comparisons to two options that are not as good; perhaps two houses that are the same price or more expensive but with fewer amenities or worse locations.

Freelance writers. You sell blog posts, email copy, and other content marketing. Your target is your “SEO Content Strategy” bundle. Choose pricing bundles such that you include a “decoy” or an unattractive option. It could look something like this:

Single Blog Post: Get one blog article for $250.

Blog Post Bundle: Get five blog articles for $1,200.

SEO Content Strategy: Get a full SEO site audit, content strategy, calendar, and five articles for $1,300.

In this case, you would likely sell more of the “SEO Content Strategy” option because it’s not much more than the “Blog Post Bundle” and comes with much more content.