Recently a newspaper came to our campus and gave exclusive offer for the college students which were – 6 month subscription for Rs. 149, 9 months subscription for Rs. 199 and 12 month subscription for Rs. 299. It was no brainer to choose for the second option and more than 95% students opted for 9 month subscription. This was no coincidence or consumer’s choice but the company wanted them to take 9 month subscription even when 12 months subscription could have bring more revenues to them. With a slight manipulation in pricing and quantity of the product/service the marketers can make the consumers to choose what they want to sell.
This strategy to make one choice less lucrative and raise consumer’s preference for other product (with small quantity/offering difference) is known as Decoy strategy in marketing world. The concept of relativity and comparison used by the consumers for choice making process is subtly targeted by neuro-marketing discipline. Mostly the consumers find it difficult to choose from many choices and that’s where Decoy strategy plays its role by giving a small impetus for choosing the desired product of the company. Dan Ariely in ‘Predictably irrational’ has discussed and proved this concept well. Better understanding of potential and purview in which this strategy can be adopted in different industries may come by considering more examples.This simple marketing practice under stably comes under pricingof marketing mix. Though a word of caution at this point is that this strategy should not be used in highly competitive scenario where competitors may take advantage of such differential pricing. Also products like mobile phones, automobiles, electronic gadgets, etc. which have many specifications and features associated may be avoided for such pricing strategy. The strategy can be used to increase sales of a product by introducing another product but priced higher or lower than the focused product.
Consider Vodafone’s GPRS offers which gives 2GB data usage pack @ 95 Rs. If an additional option of 4GB is introduced @ 120 will certainly divert the users to go for the former choice even though they may not be able to exhaust 2GB in one month (those who use GPRS on phone know it well). If 1GB data pack at Rs.65 is introduced than it’s likely that users will find more value in 2GB pack at Rs. 95 instead of 1GB pack. This may not be true for all consumers but such a manipulation will certainly improve the results in desired direction for marketers.
Not just that one can mould a consumer’s preference but also this neurological insight can bring large scale industrial changes if strategized correctly. For instance, film industry is moving towards 3D experience and to fasten such transition Decoy strategy may help if major players intend to as the transition will help them not only to increase revenues but also piracy ,which is eating up their profits can be dealt to some extent. What they have to do is simply increase the rates for 2D picture screening such that it becomes ‘relatively’ economical to go for 3D screening as they will find more value in it. After the wheel start moving towards 3D, the rates may be adjusted as people get familiar with the new technology and will find it reasonable to pay extra for it.
Banking companies can also use strategies which may bring slight differentiation in package pricing and sell desired and most profitable services. For instance, online banking is one thing that banks want to promote besidethe credit card schemes but both are not accepted well by Indian consumers due to technology hesitance and lack of value proposition the consumers see in it. To deal with it, companies can provide schemes where internet banking is coupled with regular banking facilities and the minimum balance required is lower than that of regular banking. The point to be focused is the difference in the price needs to be significant to show higher value for the desired package. Also, credit cards which the bank wants to sell more need to be provided with similar cards which gives lower value proposition to the consumers at higher cost to them. The division should be subtle enough to engage the consumers in choice making process and give them feeling of winning a right deal at lower cost as compare to what they were previously going for.
This whole concept is applicable to product/services which do not cost extra to the company for offering and cost only if opted for. If applied to perishable products or goods which needs inventory than the overpriced or under priced products may cost heavy losses on sales and also due to increased inventory. Caution should be taken as competitors may take advantage of the gap/need cropped up for the product at a price in between the two prices if higher price is too high and sufficient demand is there. The whole idea rotates around to make the consumers think rationale and choose the desired offering due to clear&better value proposition in their choice.