For those of you who run a business, setting the price for a product is a double-edged sword issue that is always tricky to get right. Making it cheap will attract consumers, but would result in a paper-thin profit margin. Making it expensive can bring in more money, but it will be much harder to make the product appealing to your targeted audience.
So, it must be puzzling to see how bigger brands like Apple can sell their pricey products. What’s their secret? Is it hype? Features? Prestige?
While those factors do affect their success, they also like to implement a marketing & psychology trick that can make the relatively high price tag of their products actually perceived as a desirable value. This trick is known as the decoy effect.
The Important Asymmetrical “Bait”
Let’s take a look at the presentation for the release of the iPhone 12.
While we don’t know the specifications of all the products above, we can immediately see that it’s a no-brainer to buy the Pro Max variant if we can afford it, right? After all, it’s only an extra $100 from the Pro. And the Pro itself clearly looks like an upgrade from the Max with its $250 price difference.
Can you identify the “bait” that I’m talking about?
It’s the Pro!
In our thought process above, we use it as the center product of comparison. We use it for the Pro Max above it, and the Max below. Compared to it, the Pro Max seems like a bargain. Because of the extra feature, the bigger screen, that you get considering their price difference. And the reason we see this $100 extra cost as “reasonable” is only because of its $250 difference when we compare it down to the Max.
Don’t believe me? Take a look at what happens if we took it out from the equation.
Now, all we can see is that the Pro Max is much more expensive than the Max. It comes with a $350 price difference, almost 50% of the Max’s price. Is it really worth the upgrade? Maybe. But the mere fact that we ask this question already shows how the Pro Max is now less attractive for us. Even if we can afford it, now we feel more hesitant to spend that extra amount of money.
This is where Apple’s use of the Pro variant as a bait — or decoy — came into play.
By definition, the decoy effect is a phenomenon where our perception of two options is altered due to the addition of a third option that has an asymmetrical discrepancy. What it means is that this third option is completely inferior to the targeted option (in this case, the Pro Max), but only partially inferior to the competing option (the Max). This is why the decoy effect is sometimes also referred to as the asymmetric dominance effect (credits to thedecisionlab for this definition).
Can I Use This Strategy for My Business Though?
Yes, you most definitely can! This principle works even if you’re not selling an expensive handheld device that has a half-bitten fruit logo on it. In fact, you can use this trick regardless of the kind of product that you offer. Here’s another decoy effect application example from an entirely different industry:
This is an offer made by Steam, the video game software distribution company, for one of its products.
Now, we understand what the decoy effect is and how it affects our judgment. So, we can identify which of those offers Steam used to steer their audience in the direction that they wanted.
Target: Monster Hunter Rise + Sunbreak Deluxe
Competition: Monster Hunter Rise Deluxe Edition
Decoy: Monster Hunter Rise + Sunbreak
The same exact phenomena occurred here in this example. If there’s no decoy to “lift” the value of the target variant, consumers may actually be more interested in getting the competition because they feel like they’re saving money. Only when the decoy is there to be used as a comparison for the two will the audience see the added value they can get by choosing the target variant. If you think this is only an assumption on my part, it’s not. This is actually a proven fact with pretty convincing data.
One of the most well-known examples of the decoy effect in marketing was a campaign by the British-based newspaper company, The Economist:
This example was used as an experiment by Israeli-American professor of psychology and behavioral economist, Dan Ariely, in his New York Times bestseller book, Predictably Irrational. He used 100 of his students as the sample and asked them to choose between the three subscriptions option above. The results: 16% chose option A (web subscription), 84% chose option C (print & web), and no one chose option B (print).
Seeing this result, he restarted the experiment with one crucial modification. He removed option B altogether (if no one chose it, why include it, right?). The result of this second experiment confirmed the effect of option B as “bait”: 68% chose the web option (previously 16%) and 32% chose print & web (previously 84%). This absence of a print-only option made the students felt more difficult to choose, which is why they opted for the most affordable subscription.
This shows that although no one chose the print subscription, it actually helped them make a decision easier because they can compare and see the value of the most expensive option.
Sacrificing margins to attract more buyers could potentially slow down – or even damage – your company’s development. So, try to implement this trick to your offerings if you have no option but to set a higher price tag for your products (we know this happens sometimes). This is a tried-and-true method that is even used by companies as big as Apple. Give your audience a “bait” so that they will swim in the exact direction that you want.