When buying any product, have you ever switched your choice from one option to more expensive just because it is more profitable to you?
This is the decoy effect.
The decoy effect is a phenomenon wherein a customer changes his or her preference between two or more options when presented with a third option.
If the quantity is offered as small, medium, and large, this effect will push or force you to buy the large one.
Imagine yourself in a cinema hall, you decided to buy a bucket of popcorns. You are offered three options: a small bucket for $3, a medium bucket for $6, and a large one for $7. You are more likely to buy the large one as paying a penny extra will give you a much larger size of the bucket. The second option is the decoy, an irrelevant alternative that induces you to spend on an expensive option because it seems profitable.
This shows that the second alternative that is offered is used to nudge higher spending by you.
Price is the most sensitive element of the marketing mix that requires a thoughtful strategy to nudge consumers on spending more and increasing sales of a given product or service. Hence, this is one of the cunning pricing strategies that lead to increased sales.
Here’s another example of the decoy effect: