The last mental shortcut we're going to review here is called price decoy.
What do I mean by decoy?
Let's visit some examples here.
Now imagine you are on the market trying to buy some bread machine and
in scenario A you are really faced with two options here.
Machine A which cost $59 and you have Machine B that's a $129.
So naturally, in situation like this, consumers are really
making a trade-off between price and the perceived quality here.
So you are going to get consumers who are price-conscious to favor bread machine
A here.
And you are going to get consumers who prefer to higher
quality machine to prefer Machine B here.
Now, imagine what would happen in a different scenario, so in scenario B,
again, you will be faced with the exact same two machines here.
With an additional machine.
That's bread machine C that's priced at $199.
If we assume consumers’ preferences are stable,
introducing third item really shouldn't change how people’s
preferences are depending on how they make choices between these two.
But it turns out that this machine see that's price of a higher level
can be considered a decoy. Because the introduction of this decoy
is going to change people's overall preference.
Now imagine you are in the scenario B,
looking at the lineup between these three machines.
Which machine would you prefer?
So naturally, with the introduction of Machine C,
there is $199 machine that is no longer expensive on the market.
Because, if you compare 129 to $199 this is relatively cheaper.
So, it's either justifiable and as a result, wth the introduction
of a more expensive item that you may never really hope to sell.
It's going to make sure that more consumers are going to prefer this middle
option, as a result of having the decoy in their consideration set.
And obviously, price decoy does not only involve price,
it can also involve attribute level of information.
So again, let's use an example here.
Imagine in scenario A, you are trying to decide yet again between two machines,
but here you have more information on the different product attributes here.
So, you can see Machine A is inferior because it doesn’t have an automatic timer
compared to Machine B, and it also has a lower capacity compared to Machine B.
So again, in this situation,
consumers are making a trade-off between the lower price option that has inferior
feature versus a more expensive option that has much better feature.
So it's a relatively hard trade-off to be making.
Now, imagine what happens when we introduce a third option and we have
some leeway in terms of how that third option has in terms of attribute feature.
So I'm going to assume again this Machine C that we are introducing here is priced
at a higher level, not only is it initially higher in terms of price,
the attributes that's going to be presented actually matter too,
if you really want to promote Machine B here.
So what you need to do in this case, really this option C is the dominate.
You want it to be the dominate option, so what do I mean by dominated?
So, in this case, you want to make sure that the feature you have