Offer a Third Choice, Boost Sales

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In both Decoy Marketing and More Decoys: Compromise Marketing, I wrote about how adding an item to a lineup of products could increase sales. In the former, the “decoy” was a product that was less attractive than another product but priced the same, or almost the same. This caused sales of the more attractive product to jump, perhaps because it looked all that much better by comparison to the similarly priced but less attractive product.

Now, researchers at the University of Minnesota have used brain scans to show that it’s easier for people to make a decision when a third product option is present vs. choosing between just two possibilities.

Akshay Rao, a marketing professor at the University of Minnesota’s Carlson School of Management, has conducted research that shows that decision making is simplified when a consumer considers a third, less attractive option. For example, when a second, less desirable sweater is also considered in the situation above, the shopper could solve their conundrum by choosing the more attractive sweater. The less appealing sweater plays the role of a “decoy” that makes the other sweater appear more pleasing than before. “In some ways, it is quite straightforward,” said Rao. “When a consumer is faced with a choice, the presence of a relatively unattractive option improves the choice share of the most similar, better item.”

In their forthcoming Journal of Marketing Research article “Trade-off Aversion as an Explanation for the Attraction Effect: A functional Magnetic Resonance Imaging Study,” Rao and co-author William Hedgcock (University of Iowa) explain the reasons for this decoy effect. Volunteers had their brains scanned while they made choices between several sets of equally appealing options as well as choice sets that included a third, somewhat less attractive option. Overall, the presence of the extra, “just okay” possibility systematically increased preference for the better options. The fMRI scans showed that when making a choice between only two, equally preferred options; subjects tended to display irritation because of the difficulty of the choice process. The presence of the third option made the choice process easier and relatively more pleasurable.

“The technical evidence for our conclusion is quite clear, based on the imaging data,” Rao said. “When considering three options, our “buyers” displayed a decrease in activation of the amygdala, an area of the brain associated with negative emotions. Seemingly, subjects were using simple heuristics — short-cuts or decision rules — rather than a more complex evaluation process, when they were evaluating three-item choice sets.” [Emphasis added. From Inside the consumer mind: U of M brain scans reveal choice mechanism.]

Good, Better, Best?

It has long been a common practice to offer three options – a “good” product for the value shopper, a “best” product from the shopper willing to pay a premium, and a “better” product for everyone else. That’s classic “compromise” marketing as the high-end product makes the mid-priced product look like an excellent choice. While that strategy is still certainly viable, this new neuromarketing research suggests that if one has two products that may have roughly similar appeal to shoppers, introducing a “worse” product may ease the way for consumers to make a decision.

There’s more in the paper which will appear in the February, 2009 issue of Journal of Marketing Research: Trade-off Aversion as an Explanation for the Attraction Effect: A functional Magnetic Resonance Imaging Study, William Hedgcock and Akshay R. Rao.

The continued work in this area is really fascinating, and the brain scans in this study confirm that some of the pricing and product strategies employed by marketers for years have a sound basis in brain science.

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8 Comments

  1. Helen says

    Yes — but that only addresses the choices among one supplier. The situation becomes more complex when customers have 5000 possible suppliers each with 100 options.

  2. Matt says

    Thats another vitness that competition is good for healthy business. Adding a 3rd party product (e.g. competitor or alike) will allow consumer to make decision even faster.
    The only is to choose this product carefully…

  3. Andrea Hill says

    Interesting.. I am reading “the Paradox of Choice” right now, and it states that the introduction of a third option definitely has an effect on selection.. but it’s not always positive. Sometimes the introduction of a third option can make it MORE difficult for a selection to be made, because it starts to introduce more of a sense of loss or compromise.

  4. wannadevelop.com says

    It really can go both ways. Requires a lot of work at the end of the day 🙂

  5. Nicole says

    Good Research and Article. But it is easy to tell and difficult to implement. You need to be very selective while selecting your products or services to sell. You can’t offer really bad things or low quality service to your customer. Your product should be just a little low in quality,when compared to your superier products.

  6. Stephanie Janard says

    Something along this line was examined in the book “Predictably Irrational.” One of the examples used was picking out a house. A real estate agent would offer prospective home buyers three houses to look at; two would be quite similar, the third would be a very different style altogether. Almost every time, the prospective buyer would end up choosing one of the two similar houses, and studies concluded the reason why was because it was easier for them to compare the two similar choices. But it was made all the easier, psychologically anyway, with that third, completely unique option thrown in.

    1. Roger Dooley
      Twitter: rogerdooley
      says

      Makes sense, Stephanie. I’ve seen another comparison strategy employed by real estate sales people. First, spend all day visiting houses in the price range specified by the buyers. None seem quite right. Then, as the last stop, visit a home in a little higher price range. By comparison, it has better features and fewer flaws than all the rest. The buyers love it, and stretch their finances to get the deal done. The key to this strategy is setting the baseline expectation and then exceeding it.

      Roger

  7. Uma Mueuganantham says

    But then, there is also the situation of brand, loyalty, earlier buying behavior which could disapprove the decoy effect, right?!

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