The Decoy Effect | How Companies Make You Buy The Pricier Option

What is the decoy effect and how do companies convince us to buy the most expensive product? This is a common pricing strategy that many big businesses such as Starbucks and Apple use. Asymmetry in pricing and quality can lead us to buy one product over other products. Hope you enjoy the video and share if you like it!
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Additional Reading:
The decoy effect: how you are influenced to choose without really knowing it
theconversation.com/the-decoy...
Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis
apps.dtic.mil/dtic/tr/fulltex...
The Decoy Effect - Everything You Need To Know
insidebe.com/articles/the-dec...

[@ferbot]

Your videos are so cool, and they are super interesting. Keep the work!
I dont know how you still didn't explode

[@MindfulThinks]

Thank you! Just happy that people enjoy them :)

[@31ink129]

Great video ! :)

[@ankitkiran7456]

Great work

[@MindfulThinks]

Thank you!

[@NameExplain]

I actually brought a medium popcorn at the cinema the other night and thought to myself "I wonder how many people actually buy a medium" lol.

[@MindfulThinks]

I’ve definitely done the same.

[@VSPhotfries]

I've never fully understood why companies want to sell you a large when often (obviously not always) the large is a better value. A small soda that's 12 oz and a large that's 36 oz but only twice as expensive makes no sense to me, since the large is less money per oz of soda and therefore a lower profit margin. Why do they push a lower price per oz? Is that in an of itself a decoy for a different product entirely? Are the places I frequent just run by people bad at math and this isn't the norm?

[@lore_nza]

It is the norm. I agree that at first it might make no sense mathematically, but if you look into it there is always something that doesn't quite click in how much you end up paying.
For example, here in Italy McD offers only two sizes of beverages (I'll use Liters from metric units for convenience): small is 0,25L for 2,10eur and big is 0,4L for 2,40eur. No medium size.
Just for reference, 2L of Coke (not diluted like the McD's) from the supermarket are typically 2,5eur.
As you can see, not only do they pump up the price for the smaller size so that you are discouraged from purchasing it, but they also give you less product in the big one than double the amount of the small one, meaning that they actually save money by having you purchase less product than you might think you will be getting, for a higher price than you should, while you think that it's YOU who are saving money.

[@generic_account_name]

Basically, it makes sense for them to cut you a "deal" for three reasons:
1. The "deal" might not be all that great, or might still be very profitable for them
2. Some elements of making the product don't scale with size, and those that do might make up a small portion of the overall cost
3. At some point, the overall amount of product moved becomes more important than absolute profit margins, especially when other bottlenecks like the number of customers you can expect come into play.
Let's illustrate this with an example:
Imagine you're selling pop. Say you have 3 sizes: a small (20 oz), a medium (32 oz), and a large (52 oz). Let's say you price them accordingly:
Small: $1.20
Medium: $1.70
Large: $2.00
Now, you might notice that the unit price for the large is only 3.8 cents per oz, vs 6 cents per oz for the small. Doesn't that make the large a great deal?
Well.. not really. First, notice that 3.8*67 = $2.55 for a 2 liter is not an awesome price. Further, if you're paying $50 for a BIB that can make 30 gallons of soda, *your* unit price as the store is about 1.3 cents per oz -- still a handsome profit.
But there's a bigger issue -- say you have 1000 customers per day. If every one of them bought a small, you'd make $1200 on soda, minus (50*20000)/(30*128) = $260 in costs for syrup, or about $940.
If every one of them bought a large, you'd make $2000 minus (50*52000)/(30*128) = $677.08, or about $1323 in total; nearly $400 more than selling a small to the same number of customers.
When you also consider that going from a small to a large doesn't necessarily increase things like the cost of the cup itself or the labor needed to prepare it proportionally, it's easy to see why selling the larger size is desirable enough that making some small "sacrifice" in the form of absolute profit margins to nudge customers in that direction is worth it.

[@FenerBahce-vy9xx]

if you choose the decoy product, you are still doing something wrong???

[@nerlam1]

If you’re spending $4 for a cup of coffee, you need to buy a Keurig 😂