The Decoy Effect in Price Tables

As a UX Designer I like to understand why some design patterns work while others stand in the way of a great user experience or perform outright counterproductive. I found myself intrigued by the psychology of persuasion, how these techniques are used throughout the web and how it affects our decision making. One of those techniques is called the Decoy Effect.

The decoy effect, also called the asymmetrical dominance effect, is a phenomenon where people tend to have a change in preference between two options when presented with a third option that is asymmetrically dominated.

So what is asymmetrical dominance you ask? Don’t worry if Wikipedia’s quote below isn’t clear enough. It will be by the time you finish this article.

“An option is asymmetrically dominated when it is inferior in all respects to one option; but, in comparison to the other option, it is inferior in some respects and superior in others.”
— Wikipedia

This natural behaviour, resulting from the decoy effect, is often exploited in pricing tables. By integrating a third – being the decoy – product, we can increase the preference for the dominating option. Companies push customers, who usually tend to buy the cheapest product, towards a more expensive product.

Still wondering whether the user’s experience can be designed or not?

How does the decoy effect work?

Let me explain this with a simple example in where you would like to buy a new MP3 player. Two things are important: the storage capacity and the price. In the image below we have a pricing table for two players. In this case, some consumers will prefer A for its greater storage capacity, while others will prefer B for its lower price.

 

Now let’s add a new MP3 player to our pricing table. MP3 Player C is more expensive than both A and B and has more storage than B but less than A.

The addition of MP3 Player C – which buyers probably avoid (they can pay less for a model with more storage) – causes MP3 Player A, the dominating option, to be chosen more often than when we only had two choices. Because A is better than C in both respects, while B is only partially better than C, more consumers will prefer A now than before (Wikipedia’s quote). MP3 Player C is the decoy product that will increase sales of A.

Example 1: The Economist

One of the best known examples of the decoy effect is an old subscription page of The Economist. They offered 3 different types of subscription:

• Web Subscription – $59
• Print Subscription – $125
• Web and Print Subscription – $125

The first offer of $59 seemed reasonable. The second option (only print) seemed a bit expensive, but still ok. But what about the third option? Both Web and Print for the same price as the print-only subscription?

Dan Ariely, an Israeli American professor of psychology and behavioral economics and author of “Predictably Irrational“, tested this phenomenon with his MIT students where he asked them to choose a subscription. The results were:

• Web Subscription – $59 (16 students)
• Print Subscription – $125 (0 students)
• Web and Print Subscription – $125 (84 students)

Total revenue: $11,444

 

The majority of students selected the third option (dominating) and none of them selected the second option (the decoy). Knowing this, Ariely performed a second test and removed the decoy product. The results were:

• Web Subscription – $59 (68 students)
• Web and Print Subscription – $125 (32 students)

Total revenue: $8,012

 

This time, most of the students preferred the first subscription. By adding a decoy product, The Economist improved sales with 30%.

Example 2: Apple

Not long ago, Apple unveiled their new iPod Touch devices. I took a screenshot of the pricing table. As you can see, for $229 you get 16GB, for $299 you get 32GB and for $399 you get 64GB.

When you want to double the storage capacity – going from 16GB to 32GB – you pay $70 extra and get more features, such as a 5MP iSight camera and iPod Touch Loop. When you want to double the capacity from 32GB to 64GB, you pay $100 more but don’t get extra features for it.

You might conclude the 32GB version is the best value for money. Only a few would buy the 16GB version and even fewer would buy the 64GB version. The 16GB and the 64GB version act as the “price decoy” to make the 32GB version as the best option.

By the way, the iPhone 5S with 16GB will be available for $199, which is $30 less than the new iPod Touch and has a lot more functionality. Fair enough to say that the iPhone comes with an additional service plan.

Example 3: The New York Post

Have a look at the subscription options of The New York Post in the image below. So what is going on here?

 

Compare the weekend deals and week deals separately. Saturday-Sunday for $2.50 against the Extended Weekend (Fri-Sun) for $2.50 and Weekday (Mon-Fri) for $4.99 against Daily Delivery (7 days) for $4.99. Does this mean that I get more editions of the newspaper for the same price? A no-brainer, right?

So why did The New York Post add two more options? They added the first two options to make the last two options look so much better. But what is the catch? Two ideas:

• A growth in newspaper circulation,
• The disclaimer states: “These discounted introductory offers are available only when paid by credit card. At the end of the introductory period, your subscription will automatically renew and your credit card will automatically be charged every 4-weeks in advance at the then prevailing rate for your service area until you notify us by telephone, mail, or e-mail of your decision to terminate your subscription.” The disclaimer is only valid for the last two options.

If you have some thoughts about it, let us know!

Further reading

Do you want to know more about the agony of choice and how people can be influenced in their decision making? You can read the research (PDF format) by Dan Ariely and Thomas S. Wallisten or the book review of “The Paradox of Choice – Why More is Less” by Barry Schwartz.

The decoy effect is not only being used in pricing tables, but even in menu cards as well. Its entire design is based upon guiding the person to those dishes with the highest profit margin.

Another interesting article related to the decoy effect is about the psychology of money. Behavioural scientists Dan Ariely and Jeff Kreisler investigated our rather irrational choices when it comes down to money and how it influences our buying behaviour. Why do we feel less pain when paying with credit card than with cash? Why don’t we never think about the alternative costs when spending money?