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Decoy marketing: giving customers a little nudge.

At the nexus between marketing, consumer behaviour and good ol’ fashioned psychology, decoy marketing is a popular retail technique used to steer or “nudge” the consumer towards a targeted product.

Say a customer is shopping for a new set of premium bed linen. Sheet set one is made from a 500 thread count Egyptian cotton-blend, and retails for $200. Sheet set two is made from 1200 thread count pure Egyptian cotton, and retails for $400.

Faced with these two choices, many will purchase the cheaper option, feeling that the pricier set is too much of a splurge.

Decoy marketing, however, introduces a third middle option – a decoy – whose sole purpose is to nudge the consumer away from the “competitor” (the cheapest option), towards the pricier “target” option. So, in the case of our bed linen example, we introduce a third sheet set made from 600 thread count pure Egyptian cotton that retails for $389. Suddenly, the $400 set seems like a steal!

Welcome to the decoy effect.

In a nutshell, this strategy uses clever pricing to steer the consumer away from the decoy towards a certain choice. This is known as “asymmetric dominance” – the decoy is priced to make the costlier, more profitable option look more appealing. In the process, the decoy is “dominated” by the perceived value of the target product.

By utilising cognitive bias, the decoy effect unconsciously directs the consumer to make the purchase. Unconscious is the crucial word here. Few people will purchase a product if they know they’re being coerced.

The decoy effect falls under the umbrella of the brilliantly titled Nudge Theory – more commonly known as “nudging” – defined by Richard Thaler and Cass Sunstein. Faced with what psychologist Barry Schmidt calls the “tyranny of choice”, the majority of consumers will experience a level of anxiety that impedes their decision-making.

As Inside Retail explains, in order to simplify this process and make a purchase they feel is good value, consumers rely on a couple of key choice attributes, namely price, quality and convenience. By manipulating value perceptions, decoys nudge the consumer towards a particular outcome while still giving them the illusion of making a completely logical choice.

A little bit sneaky? Maybe. Good business practice? Definitely.

Next time you find yourself online or in-store deliberating which item to choose, weighing up their features, their quality, and which one seems the best value, consider whether you’re being nudged. It may give you a wry smile.


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