Pricing and the Decoy Effect: A Study on how ...

Pricing and the Decoy Effect: A Study on how Corporations Nudge Consumers to Spend More

Author Name : Niharika Chand, Dr. Manisha Raj

ABSTRACT

Pricing and marketing strategies here play an important role when it comes to functioning of any business. It is observed that specific ways of payment while making purchases largely impacts the spending behaviour. For example, a consumer spends more while using a credit card than those who pay through cash. Hence this comes at odds with the economic theory which argues that method of payment should have no effect on spending, so consumers seem to be indulging in "irrational" behaviour. However, studying consumer behaviour helps in understanding the spending patterns more accurately. The paper aims at understanding the consumer behaviour, througha detailed study of ways through which corporation encourage consumers to spend more. Another important aspect is pricing, which is equally crucial when it comes to marketing and as much thought goes behind setting prices in order to nudge consumers. One of the strategies the firms use to switch choice from one option to a more expensive profitable option one is called Decoy Effect. This study revolves around the concept of Decoy Effect, a phenomenon whereby consumers change their preference between two options when presented with a third option. Hence, the paper also determines how firms use this phenomenon i.e., Decoy Effect to influence consumer choices. The research Objectives will further be justified with the help of Primary data collection and appropriate tools.

Keywords: Consumer Behaviour, corporations, Decoy Effect, Marketing, Pricing, Strategies