Ep 281 | The Decoy Effect

Thank you for joining me today. It's Brian Gubernick and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. Before we get into today's topic, I would like to ask that if you are into all that we're sharing here, If you're part of the No Days Off Nation, if you want to show your appreciation for our group and our podcast, the best thing that you can do is share today's episode or one of your favorite episodes with a peer of yours, someone that you think could in fact benefit from the topic for today or any other day. So again, people ask me all the time, Brian, how can we help? Well, the best way is to spread the word. And I think by sharing the podcast, That's, that's the mechanism to do so. So I would appreciate it. It would mean the world to me. Thank you for your support as we are coming up on 300 episodes here shortly. Let's get into today's topic. Today, I want to talk a little bit about sales and marketing, and this should be a pretty quick hitter today. As we talk around sales and marketing, we don't always get as tactical with sales and marketing strategy or even business strategy. We talk about leadership and overall business strategy, but we don't get as tactical as we, as we may like to do. And today we're going to do that. Today we're going to get tactical and we're going to do so by talking about the decoy effect, the decoy effect. Now the decoy effect is this phenomenon used in marketing and in advertising and in sales to drive specific consumer behavior. It is exactly as it sounds, a, a decoy effect. Let me give you an example of the decoy effect. Let's say you've got a bottle of wine and that bottle of wine is priced at $5. Now let's say you've got another bottle of wine and that bottle of wine, while slightly better than the first one, This one's priced at $12. So you've got Bottle A at $5, Bottle B at $12. Now Bottle B is a little bit better than Bottle A, but studies would show that most people, unless there's a sizable difference in the quality, most people will default to Bottle A, the cheaper one. It's more than— I'm sorry, it's less than half of the cost of Bottle B. Now we introduced the decoy effect. We add a Bottle C, and Bottle C is priced at $80. So Bottle A at $5, Bottle B at $12, and now we throw Bottle C onto the shelf and it's $80. Bottle C is a decoy. Why is it a decoy? Because what human behavior displays is that bottle B now becomes more appealing because it's being compared against an $80 bottle versus the $5 bottle it was previously being considered against. Bottom line, in a sales environment, the data will show that if it was A versus B, A, the $5 bottle is likely to sell more. However, if there's A versus B, but then you add C, and C is set up in such a way that it's a decoy, in other words, it's priced high, it makes bottle B's price more appetizing. And now bottle B is likely to capture about two-thirds in a, in some of the tests I've seen, about two-thirds of the total sales. C will get some because high-end people will spend money on, on higher dollar things with the, with the belief that it's more valuable. Same goes for the $5. People will save money and spend on that. Two-thirds though will go to bottle B when there's A, B, and C options. Maybe another example of the decoy effect. Let's say you've got two hamburgers, right? You've got, uh, the basic burger that costs $10 and you've got the deluxe burger that costs $15. If you have a basic burger at $10 and a deluxe burger at $15, let's say you're just at this restaurant, you're trying to decide between these two meal options. Initially, you might lean towards the basic burger because it's cheaper. However, what happens when the, the restaurant introduces a third option, the Mega Burger, and the Mega Burger costs $20? So you've got a basic at $10, a deluxe at $15, and a mega at $20. Now that deluxe burger, that $15 burger, suddenly seems like a better deal compared to the more expensive Mega Burger. And that's because the Mega Burger serves as a decoy. It makes the Deluxe Burger appear more attractive and better value than it did before the introduction of the Mega Burger. It's just a fascinating, uh, thought process or concept, and it plays out in human behavior. So where am I going with all this? Okay. This is where I want to get tactical with you. When you think around sales and marketing, and many of the people listening to the No Days Off Podcast are in sales, or at the very minimum, you're business people, you're entrepreneurs. You are having to decide how to price and structure different services and products that your business produces or sells. If you have two options, you oftentimes are just going to split the sales between those two options. I've got product A and product B, service A and service B, and they might have different prices and different attributes, but bottom line is you probably will split provided that they're priced within a reasonable amount and the, and the, and the quality of the service or product is, is close. However, if you want to capture more sales on the higher price service or product, again, assuming that it's a good product or service, you introduce a third option, a pricier option, the all-in option that might be the top of the line service that only some people are going to be willing to pay for. But in introducing that decoy, you will sell more of what previously was the higher price service. So if you're running a, a sales business that offers different services, maybe offer a tiered sort of structure where you're increasing the types of services that you're providing or the value of the services provided, but you're also increasing the cost. And what you'll find is that people will have a tendency to opt to the one sitting in the middle. If you've got a product, same sort of thing applies. If you've got a person, like, like, I know this might sound like a weird one here, but this is a concept that plays out in the dating world, which I have not been part of in quite a long time. But when you've got two individuals, right, that, that may be you know, a good date for you or someone that, someone that you ought to be spending time with and you're choosing between two individuals. Now, most of us don't have two people to choose from, but just play this out with me. You're choosing between two people that, you know, maybe one's a little smarter and one's a little bit more attractive and one's a little bit more fun, but one's a little bit more, you know, exciting or likes to do the things you like to do. And you're kind of weighing these things. It's really difficult to choose between the two. But the funny thing is, is if a third person is now introduced, and that person— and please, you know, take the words I use with a grain of salt— that person is inferior in some way to one, if not two, of those individuals. It will make one or two individuals look better. In other words, it will aid in the process of selecting between the original two. It's funny, but think about how this plays out in your life. So As we wrap this up, what do I want you thinking about? What's the focusing question? The focusing question is, from a business, from a sales and marketing perspective, as you get into your business world today, where can you leverage this decoy effect? And I'm not necessarily like decoy, I'm not listen— looking to dupe anybody, but we are in the sales and marketing game. So how can you introduce the concepts we've discussed here today to get the consumer more interested in the product or service that you in fact would like to sell more of. Again, like I said, I think many of our listeners, you know, this concept very much applies to your daily world, your daily life. So on that note, thank you so much for listening. No Days Off Podcast, really appreciate everybody that hangs out here, spends time with us, and puts in the work. Do me a favor and remember, every single day brings a new opportunity to get better. So let's get after it.