Decoy Effect

(The decoy effect is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated. An option is asymmetrically dominated when it is inferior in all respects to one option; but, in comparison to the other option, it is inferior in some respects and superior in others.)

Decoy effect plays an important role in pricing. Every day we come across such kind of product and service pricing where simply use of additional option create confusion in the mind of buyers. Human mind is always give preference to such option where one can compare the price of product and service with other available option. For example: You are searching for magazine for annual subscription and you find out following pricing:

1.Online subscription:  $75

2.Print subscription: $125

If you have to make a decision you simply go with option 1^st. Here no option for comparison so you directly make a decision. But, here is another option.

1. Online subscription:  $75

2. Print subscription:  $125 (Decoy)

3. Online and print subscription: $125 

So, now what would you do, yes you think  option 2, is not applicable because now at the same price you are getting both kind of subscription Online as well as Print, your mind directly choose option 3. Just use of additional option (Decoy) change you buying decision and you make a purchase as company need. What happened here human brain start comparing with other option which relatively less beneficial.

This kind of pricing strategy being used is all product and services.  

Second Example:  You are planning to go on vacation to and you approach to travel agent he gave you following option.

       1.   Rome:  4 places with breakfast and snacks including.

       2.   Paris: 4 places with breakfast and snacks.

Here, both the places are equally important as travel and tourist point of view, and you will not compare with the price and you directly choose any option according to your choice where you actually would like to go.   But,

What if one more option given to you?

1. Rome:  4 places with breakfast and snacks including.

2. Rome:  4 places without breakfast and snacks including.(decoy)

3. Paris: 4 places with breakfast and snacks.

Now, your mind starts comparing price with less attractive option. And you buy exactly same option what that travel agent wants you to buy.