Imagine that it’s a warm summer’s day and you decide to buy some lemonade from a stand in a park. Which option would you choose?
We recently asked participants in an online study to make this choice. Most people (52%) chose the Medium. Around a third (34%) chose the Small, and just 14% chose the Large.
Now imagine that you are the owner of the lemonade stand. You would like to encourage more people to choose the Large option, without lowering its price. What could you do?
You consider telling every customer in painstaking detail why 400ml is the perfect amount of lemonade for them. Or introducing a Large Lemonade Loyalty Card.
But then a fellow member of the lemonade sales community, who has a history of using various morally questionable sales tactics, suggests something else. “You could just increase the price of the Medium option,” she says.
You’re not immediately convinced, but you decide to give it a go the next day by presenting customers with the following options. If you were a customer, which would you choose now?
When we randomly allocated this set of options to another group of participants, we found that the proportion of people choosing the Large option tripled to 43%. Meanwhile, the proportion choosing the Small stayed roughly the same (39%) and the proportion choosing the Medium fell to just 19%.
You call your friend to share the news, who explains why her idea worked: “It’s called the Decoy Effect – in other words, we made the Medium a decoy option by inflating its price, which made the Large seem like a much better deal than before.
“You could also try using the Goldilocks effect to your advantage,” she then says. “All you would need to do is replace the Small with an Extra Large, so that the Large becomes the middle option.”
You decide to follow her advice and present your customers with the following choices the next day. Now, if you were a customer, which would you choose?
When we presented another group of participants with these options, we found that the proportion of people choosing the Medium stayed roughly the same as before (49%). But now 33% chose the Large, and an additional 18% chose the Extra Large.
You call your friend again to thank her. “Anytime”, she says, before telling you about a time when her cup supplier sent her twice as many small cups as she asked for. “I had to come up with something more creative to solve that problem.”
She explains what she did, and you decide to give it a go. This time, if you were a customer, which would you choose?
When this choice was randomly allocated to a different group of participants, we found that the proportion of people choosing the Small increased to 76%. Perhaps unsurprisingly, virtually nobody chose the middle option, while 19% chose the Large.
Together, what the results from this series of lemonade-related choices illustrate is that our decisions are often influenced by factors that we may not be consciously aware of. The problem is that many sellers are consciously aware of them, which often explains certain pricing tactics.
The main reason we conducted this study was to draw people's attention to these tactics. So next time you find yourself choosing lemonade in the park – or a subscription package, or coffee, or popcorn in the cinema – see if you can spot a decoy effect or Goldilocks effect in action.