How E-Commerce Brands Can Master the Generation Effect & The Decoy Effect

How E-Commerce Brands Can Master the Generation Effect & The Decoy Effect

Nadeem Manzoor, Director of Innovation & Analytics | October 06 2023

When was the last time an ad caught your attention because it genuinely piqued your curiosity or took a minute to understand? Did it make you pause and engage with the content?

Do you know how the presentation of choices can influence your decision-making when shopping online? Have you ever opted for a product or service you hadn’t initially considered, all because of how it was positioned among other options?

Consumers are bombarded with thousands of marketing messages every day. In today’s fast-paced world of e-commerce, the ability to capture and hold the interest of online shoppers is challenging. Throw in the ever-changing landscape of social media and fleeting attention spans and we have a true conundrum.

So, how can e-commerce businesses break through the noise and stand out in the minds of their audience? The solution lies within behavioral science.

The Generation Effect and the Decoy Effect are two cognitive biases that have an incredible influence on consumer behavior. These cognitive shortcuts hold the keys to making a brand more memorable, engaging, and ultimately successful. By understanding and harnessing these effects, online retailers can capture the attention of potential customers, but also elevate their brand’s value, and guide consumers along the path to conversion.

In this article, we explore the Generation and Decoy Effects and how e-commerce brands can strategically use these biases to their advantage. Let’s take a look at the science behind these biases, analyze real-world examples, and provide actionable insights to make the most of these powerful psychological triggers.

What is the Generation Effect?

Have you ever seen an ad that makes you stop and think a bit before you process it? These tiny mental puzzles actually help boost recall.

The Generation Effect is a fascinating phenomenon that plays an important role in how people process and retain information. This bias suggests that information is better remembered if it is generated from one’s own mind rather than simply read.

Take this ad from Guinness, for example.

Source: Guinness

At first look, you might think this ad reads “guess who,” but the brilliant thing about this play on words is that it makes you fill in the brand’s name—Guinness. It requires people to take a closer examination, thus making it more memorable and engaging.

This is a great example of the Generation Effect. In the context of marketing and content creation, the Generation Effect can be a powerful tool for making your brand and products more memorable to your audience.

Mentally filling in letters is not the only way to create an engaging ad to boost recall. The use of clever wordplay and wit in ads works, too. The Economist leverages the Generation Effect through its use of bold, engaging ads that take a minute to “figure out.”


Source: The Economist

Take this simple ad above. At first, you might read this as the typical “great minds think alike,” as the old saying goes. However, upon further examination, you realize it says, “Great minds like a think.” Hm, interesting.

Does it make you ponder? Does it make you stop and think about what The Economist is trying to say?

This example is part of a larger ad campaign that uses tiny thought-provoking puzzles to create cognitive dissonance, pique curiosity, and ultimately drive readership. The Economist deliberately leverages the Generation Effect by making its content intellectually stimulating, challenging, and memorable. In return, this approach not only boosts recall but fosters a loyal readership base that is more likely to engage with the magazine’s content over the long term.

The Bottom Line: Ads that require a bit of mental processing will ensure memorability. It’s a powerful tool to get your prospects to stop, think, and engage, which boosts recall and retention.

How to Leverage the Generation Effect in E-Commerce

The Generation Effect is a valuable asset that e-commerce brands can use to make brand, products, and marketing messages stand out in a crowded digital marketplace. Here are some tips to apply the Generation Effect in marketing.

  •  Fill in the Blanks: Drive engagement by having customers come up with the answer and fill in the blank.
  • Clever Copywriting: Make your customers do some mental gymnastics to understand an ad. Make sure the puzzle isn’t too challenging. It should be easy enough that people can solve it within a few seconds.
  • Puzzle-Solving Content: Create content that challenges customers to think, like quizzes or configurators that help customers find the right product based on their needs. Actively involving the customer will increase the chances of information retention and recall.
  • Interactive Product Descriptions: Develop interactive product descriptions that encourage customers to actively engage with information. This could involve product configurators, virtual try-ons, or tools that help customers visualize how a product would fit into their lives. Sephora uses this to allow customers to try on makeup virtually, while Havenly, an interior design company, allows customers to visualize furniture in any room of their home before they make a purchase.
  • User-Generated Content: A sure-fire way to get your audience involved is to encourage customers to generate content related to your products. This can be in the form of reviews, photos, or testimonials.


What is The Decoy Effect?

The Decoy Effect is a cognitive bias that has a remarkable ability to nudge individuals toward a certain direction when making a decision. It’s extremely helpful for e-commerce brands seeking to optimize their pricing strategy.

One of the most famous demonstrations of the Decoy Effect comes from a study conducted by behavioral economist Dan Ariely, which involved The Economist’s subscription pricing options and its role in encouraging consumers to spend more.

Dan Ariely’s Pricing Experiment

In Dan Ariely’s study, participants were presented with two subscription options:

  1. A digital-only subscription for $59.
  2. A print-only subscription for $125 Initially, many participants preferred the more affordable digital-only option. However, a third option was introduced:
  3. A print-and-digital bundle for $125 (the same price as the standalone print-only option).

As soon as the bundle was introduced, an interesting shift occurred. The presence of the print-and-digital bundle, which was identical in price to the print-only subscription, made the print-only option appear more attractive. As a result, more participants chose the print-only subscription, even though they could have obtained both digital and print for the same price.

Next, Ariely removed the option nobody wanted—the $125 print subscription—and asked students to pick from the remaining two. This time, the majority picked the less expensive digital version.

In Ariely’s words, “The most popular option became the least popular, and the least popular became the most popular.”

This is a perfect example of the Decoy Effect. Decoys are a commonly used tool by businesses to nudge consumers toward their preferred choices. Understanding and strategically employing the Decoy Effect can be a game changer for e-commerce businesses seeking to shape consumer choices in their favor.

The Bottom Line: Introducing a decoy can help nudge consumers in the direction you want them to go, usually pushing the customer towards a target that is a higher quality and a higher price to drive the bottom line. On the consumer end of the spectrum, Decoys provide a justification for our choice.

How to Leverage the Decoy Effect in Ecommerce

Here are some clever pricing strategies that tap into the Decoy Effect:

  • Introduce a Premium Option: When downloading an app or subscribing to a service, we often choose between different tiers: basic, premium, or pro. Usually, we opt for “basic,” even if it has fewer options. However, if the pro was only slightly more expensive than “premium” but unlocked a few more features, we might be tempted to spend the extra money. This tiered pricing strategy makes us feel like we got a “good deal.”
  • Bundle Products: Create product bundles that include both high-margin and low-margin items. The presence of the high-margin item can make the bundle more appealing. Refer to Dan Ailey’s study above!
  • Create a Decoy Product: Offer a slightly less appealing product that serves as a decoy, leading customers to opt for the product you want them to choose.
  • Relative Discounting: Try highlighting discounts or savings when customers choose the preferred product or package, showcasing the value of that choice. Or throw in something for free if they purchase a certain amount. For example, “spend $125 to get free shipping!”

Leveraging The Generation Effect and the Decoy Effect

Understanding and leveraging the Generation Effect and Decoy Effect can help take your e-commerce brand to the next level.

We invite you to dive deeper into these captivating cognitive biases in our Consumer Behavioral Lab podcast episode, “Decoys, trainees, and the Power of Puzzles,” part of our behavioral science for brands series. We discuss how these effects come to life in real-world scenarios and explore the successful advertising campaigns of The Economist.

Looking to apply these biases to your e-commerce brands? The experts at Function Growth can help. Get in touch with us today to stay ahead of the curve, boost engagement, and drive growth by harnessing behavioral science tactics like the Generation Effect and the Decoy Effect. Together, we can unlock opportunities for your brand.