A psychological tactic influencing choices by introducing a third option.
The Decoy Effect is a phenomenon in marketing where consumers change their preference between two options when presented with a third option that is asymmetrically dominated. This third option is designed to make one of the other options look more attractive. It is a strategy used by marketers to influence the decision-making process of consumers and drive them towards the most expensive option.
The Decoy Effect can be a powerful tool in setting pricing strategies for a tech startup. For instance, if a company offers two pricing plans - a Basic plan at $10/month and a Premium plan at $30/month, customers may be torn between the two. However, by introducing a third 'decoy' option - an Advanced plan at $25/month with fewer features than the Premium plan but more than the Basic plan, the Premium plan becomes much more attractive. This is because customers perceive it as offering more value for money compared to the decoy Advanced plan. This can significantly increase conversions towards the more profitable Premium plan.
Similarly, the Decoy Effect can be used in subscription plans to increase retention. Let's say a tech startup offers a monthly subscription at $20 and an annual subscription at $200. Customers may be hesitant to commit to the annual subscription. But, by introducing a decoy six-month subscription at $120, the annual subscription suddenly seems like a bargain, encouraging customers to commit for a longer period, thereby increasing retention.
A tech startup can use the Decoy Effect to enhance engagement by strategically showcasing product features. For instance, if a startup offers a photo editing app with two versions - a Free version with basic editing tools and a Pro version with advanced features. By introducing a third 'decoy' version - a Plus version with slightly more features than the Free version but significantly less than the Pro version, customers are more likely to perceive the Pro version as offering much more value, thereby increasing engagement with the Pro version.
The Decoy Effect can be leveraged to encourage app upgrades. For example, a tech startup that has a productivity app might offer a free version and a Premium version at $5. To encourage users to upgrade, they can introduce a decoy - a Plus version at $4 that offers slightly more features than the free version but significantly less than the Premium version. This makes the Premium version seem like a much better deal, prompting more users to upgrade.
A tech startup can use the Decoy Effect to increase conversions during user onboarding. For example, during the signup process, the startup can offer two options - a free trial for 7 days or a paid subscription. By introducing a decoy option - a free trial for 15 days with limited features, the paid subscription becomes much more appealing. This is because users perceive it as offering more value and are therefore more likely to convert to a paid subscription.
Decoding the Why explores how high growth companies can integrate the power of behavioral science to unlock product & go-to-market strategies.
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