How to supercharge your sales like McDonalds using the Decoy Effect

Nailing your pricing is one of the most important decisions you’ll ever make in your business. It will determine your profits, the kind of customers you attract and the perceived value of your products/services.

Mega brands like McDonalds, KFC, Amazon & Apple use 3 clever psychological pricing strategies to supercharge their sales:

1. Decoy Effect

2. Group Pricing

3. Price Anchoring

In this week’s newsletter, we’ll be looking specifically at the Decoy Effect.

1. What is the Decoy Effect?

Although we might not realise it, much of our decision making is based on comparison. . It’s basically how we determine the value of things, especially products & services.

The Decoy Effect (also called asymmetric dominance), is a cognitive bias that plays on this idea of comparison. More specifically, it explores how we compare specific dimensions to make decisions.

These dimensions include but are not limited to price, size, speed, aesthetic, novelty, etc. While using comparison as a way to determine value is nothing new, the decoy effect takes it a step further.

According to Wikipedia:

“The decoy effect is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated.”

To illustrate the Decoy Effect, let’s have a look at how McDonalds uses this killer psychological pricing strategy.

2. How does McDonalds use the Decoy Effect?🍟

McDonald's offers a small, medium, and large size for items like fries or drinks.

The decoy is the medium size which is intentionally positioned to be a less attractive option. This is because it’s often priced very close to the large, making the large seem like a better deal.

The large size is the desired ‘target’ option for McDonald's, as it increases the average transaction amount.

In the UK, the price of McDonalds fries are roughly as follows:

• Small: £0.89,

• Medium: £1.09

• Large: £1.39

Customers, when presented with these three options, tend to choose the large size because the price difference between the medium and large feels insignificant compared to the potential savings when compared to the small.

Which would you choose? 🤔

3. What is the Popcorn Sales Strategy?🍿

The Popcorn Sales Strategy is a very lucrative example of Decoy Pricing.

Cinemas often use the Popcorn Sales Strategy to persaude customers to purchase large popcorn buckets by hiking the price of the medium box.

👉Here's an example of how it works:

1. Three Options - a business offers three sizes of popcorn: small, medium, and large.

2. Decoy Medium - the price of the medium size is set close to the price of the large size, making the large size appear to be a better deal.

3. Comparison Effect - customers, when presented with these options, tend to compare the medium and large sizes. The relatively small price difference between the medium and large makes the large size seem like a much better value, even if it's more than the customer originally intended to buy.

4. Increased Sales - this strategy encourages customers to choose the large size, leading to increased revenue for the business

🚀Small Business Pricing Toolkit

👉For a deeper dive, grab a copy of my Small Business Pricing Toolkit & learn how to price your products or services to maximise your profits. It’s ony £4.99 & you can claim it as a business expense!

📢📢AND FINALLY A FEW WORDS FROM ANNIE

I hope you found this week’s newsletter helpful. Next week we’ll be looking at how to leverage AI in your solopreneur business.