Offer a Third Choice, Boost Sales

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.