Business Psychology - Latest Findings

Article No. 210
Customer Psychology Findings, by James Larsen, Ph.D.

Decoys and Market Share

Researcher explores the limits of a new marketing tactic.

Imagine facing a display of baked beans at the convenience store on your way home from work. Tired and hungry, you examine the shopping list your spouse prepared and look for clues to guide you. Finding none, you look back to the shelves and examine the beans: one brand you recognize, 89 cents, and one you don't, 59 cents. Quality verses price. You go for quality, pay the cashier, and hurry home.

A simple choice, a logical decision. Put 100 people in the same situation and a pattern will emerge - market shares. But researchers have uncovered a tendency toward illogical reasoning that can dramatically alter purchasing patterns in choice situations like this one . . . situations we thought we had figured out.

Go back to the baked beans display and add a third choice, another unfamiliar brand priced at 61 cents. On the dimension of price, this new brand is clearly inferior to the 59 cent beans. It costs slightly more. Guess what? Sales of the 59 cent beans will rise dramatically. Not just a little, but dramatically. Meanwhile, the 61 cent beans will gather dust and the manufacturer of the name brand beans will wonder what happened.

Researchers have named this the asymmetrically dominated effect, and John Doyle, from the University of Wales, recently completed a series of experiments seeking to understand how it operates in actual purchasing situations.

First, he was curious to know how large this difference in purchasing behavior would be in actual grocery stores. In his first experiment, he found preference swings ranging from 20% to 40%. That is, by manipulating which of two primary brands received the similar but inferior companion (he called them decoys), he could demonstrate a substantial, real increase in sales for that brand, ranging between 20% and 40%. The one caveat he found was that people had to believe that the decoy was inferior.

Second, he was curious if straying from personal purchasing goals would alter the effect, for example, when customers buy gifts for others or when customers make purchases for family members. Doyle found that this made no difference. Preferences would still swing broadly toward the brand paired with a decoy.

Finally, he investigated the effect of phantom decoys. Phantom decoys are inferior alternatives that are actually unavailable. For example, your Sunday newspaper carries listing of homes for sale, but mixed among these listings you'll find the word "sold" in red letters across a few ads. When home buyers strain to read the prices and addresses of these homes, they are incorporating this information in evaluating the real choices they will make between available homes. If they perceive an unavailable choice to be similar and inferior to a home they are considering for purchase, then the attractiveness of the latter will increase.

Doyle used ingenious devices to create inferior, phantom decoys. For example, in the baked bean display, he added a smaller size can of the low priced beans and marked it at the same price as the larger can. Then he removed all these cans from the shelf and left only the sign. The smaller can was an obviously inferior choice, and it wasn't even available. Yet when people saw the sign, the attractiveness of the low-priced beans rose and sales increased dramatically.

Doyle sees clear implications of these findings in product positioning and new product announcements, but he also sees a problem: it isn't possible to control other brands, so a decoy may be fleeting. No one, after all, produces a product to gather dust so a competitor's market share can improve. Also, customers may not see an alternative as clearly similar, yet also inferior.

Professor Doyle has a suggestion.

When you make improvements in your product, don't be too anxious to remove the older product from store shelves. The presence of both models, original and new, creates a similar, obviously inferior choice - a decoy. Guess what will happen?

Reference: Doyle, John, R., David J. O'Connor, Gaareth Reynolds, and Paul Bottomley (1999) The Robustness of the Asymmetrically Dominated Effect: Buying Frames, Phantom Alternatives, and In-Store Purchases. Psychology and Marketing, 16 (3), 225-243.

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