The Decoy Effect and other retail marketing gimmicks

I have been fooled.  I am convinced.Fooled

It was about one year back when I was sourcing for a new family TV set.  Off I go to one of those notorious big (presumably) discount retailers.  After I mentioned that I am interested in a certain brand the friendly (aren’t they all friendly here in Singapore?) sales guy showed me three models with slightly different features.  He praised the latest innovations of the high end model and how comfortable those features would make my TV-viewing experience.  I did let him bask in the glory of his seemingly successful sales pitch by nodding all the way.

But then, me not stupid, I decided that the slightly lower specs model still packed with features like in built camera, voice and gesture control – but without that automatic pizza ordering service – would suffice for our purposes.  Not that I don’t like pizza, it’s just that I made up that feature because I can’t even recall the difference between the most expensive and mid-range model.  I simply did not want to fall for buying the high end model with the obviously fattest margins for the shop..

When I came home and switched on the new TV I was disappointed. The fancy voice and gesture control worked only as sporadically as my former “favorite” colleague at work.  When gesturing to change channels or to adjust the volume I usually ended up with a stiff arm first before I reached the desired channel.  Exhausting.

And after I read that those cameras on top of the TV could get easily hacked resulting in people watching me watching TV, I decided to switch off the camera function all together.

How did I end up with the medium range/priced TV when the cheapest option would have fulfilled my needs jolly well?

I have been fooled by the Decoy Effect.  A phenomenon in marketing where consumers have a specific change in preference between two choices after being presented with a third choice.

Offer two sizes of soda and people may choose the smaller one; but offer a third even larger size, and people may choose what is now the medium option.  Decoy Effect

This usually works for the marketeers because we all suffer from the Extremeness Aversion.  We simply are more likely to choose an option if it is an intermediate choice within a group, rather than at one extreme end.

The decoy effect is also closely related to the contrast effect.

Let’s say a company listed their bread maker for $275 and barely made any sales. They later doubled sales not by reducing the price, but by placing a similar bread maker for $429 right beside it.  That $275 bread maker suddenly became a bargain.

So, a clever salesperson would offer the highest priced product straight off the bat.  An initial price that’s sky-high becomes an anchor for comparison  and  makes  everything  else  look  reasonably priced.  That’s why a $129 tie doesn’t seem much after you’ve spent over a thousand dollars on a suit.

It works beyond business.  You could tell your partner you’re pregnant, followed by the dint you just put on the car.

Our brain processes information relationally but these comparisons can be warped and unprofitable.   It’s helpful to think in isolation also.

Paradox of choice.

From salad dressings to computers and vehicles, we’re flooded with options.  Most people celebrate that, but if you’re looking to make a sale, you’re better off giving fewer choices.

In an experiment in a supermarket only 3 percent of shoppers made purchases when presented with 24 different varieties of jam as opposed to 30 percent when six varieties were offered.  Similar results  were found when an employer offered 50 different mutual funds versus five for the employees to chose from to put their retirement savings in.

More options produce paralysis.  The mental processing required to assess and make a decision goes into overload.  Avoid decision paralysis by narrowing your options down to three.

And careful: Once you spot these marketing gimmicks do not show Reactance – the desire to do the opposite of what someone wants you to do, just in order to prove your freedom of choice –  and end up buying the most expensive article on display.

Let’s make better mistakes tomorrow.

 

‘There are three things that are extremely hard: Steel, a Diamond and to know one’s self.’ – Benjamin Franklin

“I have always found it odd that so many people in general are worried about money and eager to get as much of it as they can, yet they give it up so easily to nonsense they buy.” – Guy P. Harrison

6 Comments

  1. i had one experience of a sale-man who talked so elegantly that i was almost brainwashed or convinced to buy what he wanted me to buy.
    i never forget this incident even after 30-40 years ago.
    Even though i had what i wanted to buy in my mind in the first place.
    Never underestimate the power of persuasion of a super “Snake Oil Sale-Man.”
    If i was a scammer i would had recruited him on that day.
    Of course i continue to meet many “Snake Oil Sale-Man” who try to sell me something i don’t want.
    But none so far can beat that man.
    Now a days, i think i better equipped because i have had experienced so many “snake oil sale-man” sale-man-ship.

    • Experience is very valuable. Unfortunately we human beings are simply too gullible.
      We are often too lazy to think and prefer to go with the flow. We always look for social proof. We might believe that for the sales guy to be successful he must be selling some good products which people like. Otherwise he would be out of business. But then who knows, maybe he is continuously selling new products to another new group of people who have not been deceived by his tricks before.

      The issue is that it could be quite costly to merely learn from our own experience. Might be much cheaper and faster to listen and learn from other people’s experiences. But in that regard we are far less receptacle compared to following the herd. The first approach requires some active effort. Whereas the second approach feels effortless as it is very passive.

      As Nate Silver (Author “The Signal and the Noise”) put it: “The instinctual shortcut that we take when we have ‘too much information’ is to engage with it selectively, picking out the parts we like and ignoring the remainder, making allies with those who have made the same choices and enemies of the rest.”

  2. Hi Andy,

    The problem is many retail sales guy or funds are selling something that you do not really need.

    Btw, ordering pizza options on the TV!!! hahaha…I committed the same mistake by buying a 3D TV with 3D specs that I have never use it before after years.

    The true good salesperson is one that understand what the client really want by asking questions and then narrow down the options for the client by introducing the few most suitable goods/services for their final decision. End of the day, mutual party must be happy.

    By the way, it’s better to do some research (just like stocks) ourselves and narrow down our options before we head down to confirm the option and buy!

    I just bought a second hand car by the way! 🙂

    • Hi Rolf,

      Exactly, but where to find that true good salesperson? More often than not they prioritize their own interest over their customers’.

      By the way Kim from Truewealth Publishing has just published a newsletter post in the same regard. He goes further to link buyer’s remorse back to investing. The post should be up at his site within the next few hours: http://truewealthpublishing.asia/

      Enjoy your car. Was it the “right” purchase for you?

      • Hi Andy,

        I reckon the car is a right purchase for me as I did my homework. Nvm if there r u forseen problems, because I am there to accept n learn for the next purchase.

        Anwway it is a second hand car that only left more than a year into its final 10 yrs, compared to my previous more lunxurious new car made in ur country of origin. Haha… So perhaps the downside is taken care significantly in terms of yearly depreciation. Committment wise, no so long until I make my next purchase or decide to do without it altogether.

        More importantly, it is relevant for my current family size and car is in good condition (at least it looks like it with service records) despite the age.

        I am also comfortable with the seller who happens to be the boss n he did not hard sell n was truthful n did the touchup as per my request before the sale.

        So the experience of the transaction was good, as for the car performance, it waits to be seen.

      • Hi Rolf,

        Your decision sounds very rational (as expected from you).

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