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Decoy Marketing: It Works and Here’s Why

Posted by | Nov 8, 2011

Decoy marketing is not about duck season. It’s a marketing approach that uses another product to spur sales for a different product. Sounds counterintuitive, but marketing research shows it works.

Of course the new product needs to be a similar, but inferior product, at about the same price. Another approach to decoy marketing would be to offer a higher priced product with similar characteristics but with a few additional features of modest or obscure value.

Of course you should avoid too many product variations. Decoy MarketingEither type of decoy product is likely to sell poorly. That’s not the point. Their purpose is to boost sales of the other product that is most similar in price or features to the decoy product.

Decoy marketing is often unintentional. Many times businesses add another product to their line and it inadvertently ends up being a decoy product. Later they wonder why the new product is not selling while the next best product’s sales have suddenly increased.

What spurred this post is that an insurance company I’ve worked with is following this exact scenario. They have a very well regarded principal insurance product to which they add additional benefits to increase the price and their profit margins. They went to market with two plans: the basic plan and a second plan with additional benefits. The second plan was priced considerably higher than the basic plan.

As a way to increase commissions to its agents, the company added a third plan. This third plan was very similar in benefits to the second plan. It dropped one benefit and added another. It also increased another benefit slightly. The premium was higher and the application fee was also considerably higher.

The result is that the third plan looks very similar to the second plan and the benefit changes are not ones that will be perceived as a dramatic upgrade. Yet, it is significantly more expensive. At the same time it results in more commissions to the agents selling it.

With the potential for higher commissions, agents are leaving out the second plan as they sell to potential customers.

They are making a big mistake by doing so! Why?...because they will make higher commissions overall by presenting all three plans as options to potential buyers.

What Marketing Research Says: My logic is consistent with what marketing research says about buyer preferences relevant to decoy marketing.

Buyer preferences are influenced by a number of factors and are often hazy to those of us marketing to them. Research pertinent to decoy marketing demonstrates that buyer preferences are influenced by:

  1. A tendency to compromise: Consumers are looking for the best “value.” Value being defined as the compromise between price and benefits. Most have trouble justifying buying the most expensive product if given a number of different options. This tendency to compromise is fundamental to decoy marketing.
  2. Options available to them: Because consumers frequently lack the judgment to determine the value of an offering, they depend on comparisons set up by the business to determine if the product is a “good buy.” “Relativity” is key.

We use consumers’ tendency to "compromise" by introducing a higher priced option that allows them to justify the next best product as the best value.

Such research demonstrates that, if all three plans are presented together to potential clients, sales of the second plan (now priced in the middle) should increase. If only the basic and highest price plans are presented, more consumers will choose the basic plan.

Because the intermediate plan’s commissions are substantially higher than the basic plan (although much lower than what I’m calling the decoy plan) agents will end up with higher commissions overall. More consumers will buy the second, intermediate plan than did so before the most expensive plan was introduced.

Because buyer preferences are also influenced by other factors, including the way products are presented, the above anticipated result can also change. Because of the increased commission with the third plan, agents may not promote all three plans in the same way and with equal intensity.

In the end, agents will make more commissions by offering the three plans rather than any two.

That’s how decoy marketing works, whether unintentional or not!

For the research underlying this post you can start by following these links.

http://www.neurosciencemarketing.com/blog/articles/decoy-marketing.htm

http://www.neurosciencemarketing.com/blog/articles/predictably-irrational.htm

Duck hunters marketing duck decoys to flocks of ducks or geese should look elsewhere!

Topics: Consumer Insights

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