Movie Theater Popcorn & the Decoy Effect

Did You Know? Neuroeconomists (apparently a thing?) found that coupons decrease stress and increase feelings of positivity as measured by oxytocin levels, which rose 38%. (Source)

I have a confession to make.

I don’t like popcorn.

The overwhelming majority of Americans (92%) disagree with me. I couldn’t find data on the rest of the world’s popcorn preference, but I have to assume it skews in popcorn’s favor.

And because I don’t like popcorn, I’m immune to one of the world’s greatest marketing traps: movie theater popcorn pricing.

Every time my wife and I go to the movies, she buys the comically large option. But in her defense, what’s she supposed to do when these are the choices?

We all know the game movie theaters are playing with their popcorn pricing strategy. The small is too small. The medium is big enough…but for only 50 cents extra we can get so much more popcorn.

The movie theater doesn’t expect to sell any of those $6.50 medium popcorn options. That pricing option only exists as a decoy to drive sales to the better value—the $7 large. Without the $6.50 decoy, many more people probably would opt for the small $3 option because, let’s face it, does anyone really need that much popcorn?

This pricing strategy, where one option exists solely to push customers toward the company’s preferred option, is called the decoy effect, and you can find it everywhere because it’s extremely effective.

Quantifying the Decoy Effect

One of the most famous examples of decoy pricing comes from the 1990s when a man named Dan Ariely conducted an experiment with pricing options for a subscription to The Economist, asking 100 MIT students which option they’d choose.

First, he offered three pricing options for an annual subscription to The Economist:

• $59 for an online subscription

• $125 for a print subscription

• $125 for an online + print subscription

Clearly, one of these things is not like the others. Which subscription did those MIT students choose?

• 84% chose the $125 Online + Print subscription

• 16% chose the $59 Online Only subscription

Then, Ariely removed the decoy option ($125 Print) and asked 100 MIT students to choose one. Did anything change?

• 32% chose the $125 Online + Print subscription

• 68% chose the cheaper $59 Online Only subscription

The mere presence of the $125 Print subscription—clearly a terrible value—increased the number of people who chose the $125 Online + Print option by 162% and increased revenue by an average of $34.32 per subscriber and 43% overall.

Think about the products and services your company sells. Think about the products and services you purchase. Where do you see decoy pricing and how does it affect buying decisions?

Everyone say, “Hi!” to Nancy C 👋

Question: What’s the most random fact you know?

Nancy C’s Answer: “Before erasers became popular people used to erase pencil using bread that had been decrusted, moistened and balled up.“

Look at that, two Jim Carrey gifs in one email!

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