Also known as the attraction effect or the asymmetric dominance effect, this principle in marketing is built around the aim of making customers choose the option that works in favour of the seller. It involves introducing a third option into a decision which acts as the decoy. Think of the decoy as a comparison factor for the other two options; it can be quite tricky to compare two options against each other in terms of their price, quality, convenience (etc.), so adding a third option gives the customer something to weigh up the other two options against.
For example, at the cinema, there will be three different sizes of popcorn in the form of small, medium, and large. Usually, the price differs quite a bit between small and large, so a medium option is introduced with a price that is more similar to the price of the large option, to tempt people to spend that little bit extra and go large. If the price of the medium popcorn was closer to the small price, people may be more tempted to stick with medium, as the leap from medium to large is too big.
A real-world, non-marketing example comes from Joel Huber, who asked participants whether they would rather go to a 3-star restaurant that is close in distance, or a 5-star restaurant that is much further away. People had a very hard time deciding, until the “decoy” was added. Once Joel introduced a 4-star restaurant that was even further away than the 5-star eatery, people started choosing the 5-star place much more frequently. This decoy worked because the 5-star place is of higher quality and is not the furthest away in distance.
Using a decoy in marketing can be used in many ways, whether it is used in a store or online, it is an effective way to get customers to buy what you want them to buy!