Decoy Effect - Example

Example

For example, if there is a consideration set involving MP3 players, consumers will generally see higher storage capacity (number of GB) and lower price as positive attributes; while some consumers may want a player that can store more songs, other consumers will want a player that costs less. In Consideration Set 1, two devices are available:

In this case, some consumers will prefer A for its greater storage capacity, while others will prefer B for its lower price.

Now suppose that a new player, C, is added to the market; it is more expensive than both A and B and has more storage than B but less than A:

The addition of C—which consumers would presumably avoid, given that a lower price can be paid for a model with more storage—causes A, the dominating option, to be chosen more often than if only the two choices in Consideration Set 1 existed; C affects consumer preferences by acting as a basis of comparison for A and B. Because A is better than C in both respects, while B is only partially better than C, more consumers will prefer A now than did before. C is therefore a decoy whose sole purpose is to increase sales of A.

Conversely, suppose that instead of C, a player D is introduced that has less storage than both A and B, and that is more expensive than B but not as expensive as A:

The result here is similar: consumers will not prefer D, because it is not as good as B in any respect. However, whereas C increased preference for A, D has the opposite effect, increasing preference for B.