Pricing strategies (II): Phantom decoys

In my last post we discovered how decoy options work and how they can be used to influence our decisions towards a particular choice. Introducing a dominated option in the choice set was a simple and effective solution to enhance the perceived attractiveness of the target option.

In this post we are going to keep talking about contextual effects that influence our decisions in relatively simple situations, introducing phantom decoys. This time though, the mechanics of this type of decoy options do not follow the reasoning presented in the first post.

Imagine that in this warm summer you are seeking an air conditioning unit. You go to Media Markt website and start looking for the offers… After 30 minutes, you find the special offer that definitely fits your needs: an air conditioning unit with a quality score of 90 (out of 100) for 299€ (A).

3 optionsYou quickly drive your car to get there. When you arrive, the commercial guy tells you a disappointing: “We’re sorry, we have run out of stock and this model is not going to be available for the next 3 weeks”… “Instead, we have this other model, which has a quality score of 92 for 329€ (B) and another with a quality score of 65 for 229€ (C)”

If you take these three options and write them down, you will easily see that option B is a decoy for option A, as it stands as a dominated alternative. But… what happens if we make the most attractive option unavailable… so that it becomes a “phantom option”?

In fact, most people would end up buying the most similar option to the unavailable one, in what is know as a “bait and switch” strategy. This strategy implies offering products that actually do not exist either they are always unavailable at the moment of purchasing.

PhantomThese practices are illegal in most countries as they are a clear fraud… but we all have seen advertisements about product X with fantastic attributes “FOR A LIMITED PERIOD” or “OFFER LIMITED TO 50 UNITS” which makes the advertisement overcome regulation policies.

Broadly talking, the mechanics of this effect involve similarity theory and managing expectations: When you see an attractive offer that really interests you, you put your expectations on that product. Moreover, you invest your time and efforts in searching and comparing it with other options and also your money in going to the store.

The more you invest the better for the store, because your irrational brain likes to have a return for every investment you made. Of course, it depends on the individual, but the average guy would transfer those good feelings towards the phantom option, the most similar option, ending up buying it.

Sold outAlways keep in mind your first priorities and distrust any “unavailable product” or “limited offer”, specially when they are designed to stimulate high volumes of people and attention. At the end, even if they are selling these 50 special promo units with negative contribution margin to the lucky ones, the store always benefits from all the other people who have come into the store for a product they will never find.

They know that at least a relevant percentage of those people will switch their preferences and “bite” the other product, which had always been the real target of the promotion.

David González

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