This week we’re going to look at a principle of psychology known as the “decoy effect” that marketers use to get all up in your head!
Anyone who’s ever taken a marketing course has heard of the four “P’s” of marketing: product, price, promotion, and place. Price is the most delicate element of the marketing mix, and much thought goes into setting prices to nudge us towards spending more. One particularly cunning type of pricing strategy that marketers use to get you to switch your choice from one option to a more expensive or profitable one is the decoy effect. (Mortimer, 2019)
What is the Decoy Effect?
Simply put, the decoy effect describes how, when we’re choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices. (Decoy Effect, n.d.) The decoy effect can cause us to spend and consume more than we really need. When a decoy option is present, we tend to make decisions based less on which option will best suit our purposes and based more on what feels like the most advantageous choice.
Another definition of the decoy effect is “a cognitive bias in which consumers will tend to have a specific change in preferences between two options when also presented with a third option that is asymmetrically dominated.” (Agarwal, 2022)
How Does It Work?
Before getting into the reasons why the decoy effect is so effective, first we need to look closer at the concept of “asymmetric domination”.
In an ideal decoy situation, there are three choices available:
The targetis the choice someone else, such as a business, wants you to make.
The competitoris the option competing with the target.
The decoyis the option that is added to nudge you towards the target.
The crux of the decoy effect is the fact that the decoy must be asymmetrically dominated by the target and the competitor, with respect to at least two properties—let’s call these A and B. This means that the target is rated better than the decoy on both A and B, while the competitor might be better on A but worse on B.
Why Does It Work?
The Decoy provides a justification for our choice.
The main reason the decoy effect works is because the decoy automatically serves as a measuring point to compare the surrounding purchase options. When there’s only two options with a wide price difference, it feels like there’s more weight to the decision. Do I pay less but also not get as much or not as high of quality? Or do I get more but spend more? The decoy serves as a justification and makes the choice to spend more feel less overwhelming.
This week we examine another principle of psychology that marketers use called anchoring. Anchoring is a type of heuristic where individuals make decisions steered subconsciously by information they’ve been exposed to, intentionally or unintentionally, that becomes a reference point for comparison or an anchor. Psychologists have found that these seemingly innocuous exposures have a profound impact on the decisions we make. Anchoring in marketing is about leveraging the fact that we use benchmarks to evaluate options to be able to make decisions more quickly, no matter how arbitrary the anchors may be. (The Behaviours Agency, 2020) Let’s take a closer look at what anchoring is and how its used in marketing to get all in your head.
What is the Anchoring Bias?
Anchoring is a cognitive bias that causes us to rely too heavily on the first piece of information we’re given about a topic. The new and initial information becomes a reference point and thus a metaphorical anchor in our mind. When we become anchored to a specific figure, idea, or plan of action, all new information following ends up being filtered through the initial framework drew up in our mind, often distorting our perception. Although anchoring is the minds way of simplifying decision making, it can skew judgement and prevent revising plans, predictions and decisions, even when the situation calls for it.
Price Anchoring
There are a few different ways anchoring can be used in marketing. The most common tactic is known as price anchoring. This is when businesses use a high starting price as an “anchor” to make subsequent prices seem more attractive. Nearly all businesses use this tactic but it’s perhaps most easily recognized in retail. Most of us have probably shopped at a Kohl’s department store at one point. They’re known for regularly running sales on their merchandise and offering an extra 10, 20, or 30% off on top of whatever the item’s sale price is. For someone buying a $65 sweater (the anchor price) but paying $50, in their mind they got a pretty good deal. But if they could’ve gotten the same sweater at another store for $40 and the actual value of the sweater is $35, they were ensnared by the anchoring effect. The video below further explains how price anchoring biases are used everyday by businesses.
Anchoring is a cognitive bias that causes us to rely too heavily on the first piece of information we’re given about a topic.
Why It Happens
There are two dominant theories behind anchoring bias. The first one, the anchor-and-adjust hypothesis, says that when we make decisions under uncertainty, we start by calculating some initial value and adjusting it, but our adjustments are usually insufficient. The second one, the selective accessibility theory, says that anchoring bias happens because we are primed to recall and notice anchor-consistent information. (Anchoring Bias, n.d.)
Can It be Avoided?
Avoiding anchoring bias entirely probably isn’t possible, given how ubiquitous and powerful it is. Like all cognitive biases, anchoring bias happens subconsciously, and when we aren’t aware something is happening, it’s difficult to interrupt it. Even more frustrating, some of the strategies that intuitively sound like good ways to avoid bias might not work with anchoring. For example, it’s usually a good idea to take time with making a decision, thinking it through carefully. However, in this case, thinking more about an anchor may actually make the effect stronger because it results in more anchor-consistent information being activated.
One strategy to combat anchoring bias, that is evidence-based, is coming up with reasons why that anchor is inappropriate for the situation. Another alternative option that can be a good idea to aid decision making, is a strategy similar to that of red teaming, which involves designating people to oppose and challenge the ideas of a group. By building a step into the decision making process that is specifically dedicated to exposing the weakness of a plan, and coming up with alternatives, you are more likely to reduce the influence of an anchor. (Anchoring Bias, n.d.)
References:
The Behaviours Agency. (2020, September 18). Anchoring in marketing: How to use it effectively. https://thebehavioursagency.com/anchoring-in-marketing/
Anchoring Bias. (n.d.). The Decision Lab. https://thedecisionlab.com/biases/anchoring-bias
We’ve all experienced the fear of missing out, or FOMO, over something. In marketing, FOMO is known as the scarcity principle or scarcity marketing, and it’s the principle of psychology we’re going to delve into this week to look at how marketers use it to get All In Your Head!
What is Scarcity Marketing?
Scarcity marketing “is a technique marketing teams use to encourage customers to make a purchase before a product or discount goes away. Often, this means putting timers on sales and promotions, limiting the number of items in stock or creating seasonal or promotional items to sell for a short time. This technique targets customers who want products or discounts that they might not get if those products or discounts run out.” (Just a Moment. . ., n.d.)
Scarcity marketing is derived from the scarcity principle, which states that people value something more if it’s scarce.
Why Does the Scarcity Principle Work?
In his book, Influence: The Psychology of Persuasion, Robert B. Cialdini explains two reasons why the scarcity principle is so effective at influencing behavior.
1. Our mind likes to create short-cuts to deal with a complex world.
The scarcity principle is one of these short-cuts. It’s easy to estimate an item’s worth based on its availability. If an item is rare, we assume it’s of higher quality and is worth more than a common item that’s easy to obtain. This is true…most of the time, which is why it’s built into our psychology. Under most circumstances, this short cut helps us. But not always. (Waschenfelder, 2020)
2. The scarcity principle creates limited opportunities. As opportunities decrease, so does freedom of choice.
We are psychologically hardwired to react against losing freedom of choice. One of the reasons for this is that we suffer more from a loss than we celebrate from a proportionate gain. We are wired to watch the downside and keep as many options openly available as possible at any given time. This is grounded in evolutionary biology. The more options our ancestors had, be it in food or shelter variety, the more likely they were to survive. If they failed to catch an animal for dinner, at least they could climb a tree in the area and eat its fruit. They kept their options open. (Waschenfelder, 2020)
As a rule, you act against a restriction because it limits your freedom of choice, and you will come to want the restricted item or experience even more.
Scarcity Marketing Tactics Used
There are 4 types of scarcity marketing, exclusivity, rarity, urgency, and excess demand, but several tactics marketers use to implement it. For this blog, we’ll take a look at 5 of the most common tactics used to create FOMO.
1. Only ___ Left!
Announcing or advertising low stock is one approach used for scarcity marketing. This method encourages hesitant customers to make a purchase before the product sells out.
2. Special edition & seasonal products
Special edition or seasonal product is a particularly effective technique because consumers know right away that the product will only be available for a limited period of time. Many companies use this tactic during the holidays such as Starbucks with their seasonal/holiday drinks. Selling limited season products can help a company make more sales during certain times of the year and create excitement each season when they release new products or the same high-demand ones from the year before.
3. Early access discounts
Early access discounts are usually time-sensitive price reductions on pre-orders of products or special promotions for loyal customers to get an item before everyone else. These discounts motivate customers to buy a product before the discount expires and others can access the item, which may lead to it going out of stock more quickly. A good way to use early access discounts is by sending emails to existing customers with the promotion details and putting a banner on the store’s website or physical location with the date the discount ends.
4. Limited Time Offers
A limited-time offer is a promotion deal set within a specific time period. It provides a clear end date for when the promotion becomes unavailable. Limited time offers heavily rely on the scarcity principle: When a product is more difficult to get, it becomes more valuable to buyers.
Limited time offers can take shape as:
Sales
Discounted prices
Free gifts
Exclusive products
Free shipping
5. Highlighting popular or high demand products
Another way to use scarcity marketing is to add features to online product descriptions that show how many customers are interested in a product. This could be displaying the number of people who have viewed the item, put it in their cart or liked it on the website. While the actual number of products available may not be limited any more than usual, customers may want the product more because they see that it’s popular and could be more likely to sell out.
We’ve all been enticed by the FOMO message marketers use to get all in our heads! Now that you know more about scarcity marketing, can you tell which tactics are used for which type of scarcity marketing?
Cialdini PhD, Robert B.. Influence (Collins Business Essentials). HarperCollins e-books. Kindle Edition.
Firestone, E. S. A. \. C. C. (2022, July 15). While Supplies Last: 8 Scarcity Marketing Tactics to Boost Conversions. Shopify. https://www.shopify.com/blog/using-scarcity-urgency-increase-sales
Waschenfelder, T. (2020, July 15). What is the Scarcity Principle? Wealest. https://www.wealest.com/articles/scarcity-principle
Just by reading the title of this blog, you’ve probably made some connection to the famous Shakespearean play, Hamlet. This association is an example of a psychology principle known as priming. It’s the principle we’re going to explore this week to learn a bit more about one of the ways marketers influence us and get all in our head!
According to Psychology Today, priming is “a phenomenon in which exposure to one stimulus influences how a person responds to a subsequent, related stimulus” (Priming, n.d.) For example, lets say two groups of people read the word “yellow”. The first group is then given the following word “banana”, and the second group is given the word “sky”. Because people have a semantic association between the fruit and its color, the “yellow-banana” group will recognize the word “banana” faster than the “yellow-sky” group recognizes “sky.” But how is the principle of priming used in marketing? Let’s look at 3 ways they use it for marketing psychology!
Direct Attribute Priming
Direct attribute Priming is a way to create associations and heighten the importance of a products strengths. One way to achieve direct attribute priming is by asking a direct question. For example, researchers approached customers in the Apple store, who entered to buy a new phone. Half of the customers were asked what their memory needs were, and the other half were asked what their processor needs were. This was a straightforward question, which had a massive impact on the customers.
The group that was asked about memory bought phones with higher memory, and the group that was asked about processor speed bought phones with higher processor speeds. The customers put more weight on these features, just by being asked a simple question which affected their purchases when it came to a buying decision. (Schoen, 2021)
Indirect Attribute Priming
Indirect attribute priming is another method that marketers use to help nudge us towards a particular purchase. With indirect attribute priming, instead of making a target client focus on particular attributes of a product, marketers work to create an atmosphere that encourages a certain type of experience, behavior, or purchase. (Maksimova, 2022)
An example of this is a restaurant wanting to increase its sales of French wine. A way the restaurant could indirectly prime its customers towards ordering French wine is by playing French music in the background. Indirect attribute priming can be as simple as playing particular types of music or using words to stir subconscious associations.
Brand Priming
Finally, brand priming, is when the name or logo of a brand influences a person’s immediate thoughts or actions. (Lu, 2020) A few examples of brand priming are:
Red Bull primes for energy and speed.
A Boston College study looked at the impact of logos on a video racing game. Evey racecar has a brand with a different company logo. Red Bull’s logo had already primed players to have more energy and be faster if they chose that particular brand. The study showed consumers felt the Red Bull logo could actually “give them wings” in the race and make them faster.
Nike primes for feelings of achievement and exercise.
Nike uses elite athletes in their promotions and employs taglines such as “Just Do It” to show the athletes’ strength and perseverance. When someone starts a new sport or wants to get fit, they think of Nike products as something that helps them achieve their goals. (Gabriel, 2021)
Even colors can be used for brand priming. Colors have different meanings and psychological associations. The image below shows the meaning different colors have and some brands that use specific colors for specific reasons.
So whether you hear French music at a restaurant and order French wine or buy a pair of Nike shoes for motivation to exercise, marketers have used priming in some way to help get you to that purchase. Now that you know a bit more about priming, which type of priming do you think was used for the title of this blog?
Gabriel. (2021, February 25). The Power Of Priming In Marketing – A Great Tool For Advertising. Digital Marketing Agency – ALLDGT. Retrieved January 23, 2023, from https://alldgt.com/priming-in-marketing/
Thanks for visiting my blog, “It’s All in Your Head”, a blog about marketing psychology. Have you ever wondered why you bought that shirt you didn’t need, food you weren’t dying to have or subscription on impulse? This blog explores the fascinating aspects of marketing psychology and human behavior. As different as we all are, we also all have basic, fundamental, psychological functions that make us not so different and marketers have learned how to use that to create influence. Some of the marketing psychology topics this blog will explore are highlighted in a Hubspot article “Marketing Psychology: 10 Revealing Principles of Human Behavior”. We’ll examine psychology principles such as:
priming
reciprocity
social proof
decoy effect
scarcity
anchoring
The Baader-Meinhof Phenomenon
verbatim effect
loss aversion
If you don’t know what these principles of psychology are, not to worry! Each week I’ll take one of these principles and go in-depth explaining what they are, why they’re used in marketing and how marketers use them to get All In Your Head!
Reference:
Mineo, G. (2017, July 28). Marketing Psychology: 10 Revealing Principles of Human Behavior. https://blog.hubspot.com/marketing/psychology-marketers-revealing-principles-human-behavior
1. Only ___ Left!
