The ‘Big Money Show’ panel discusses the decline in fast food sales and how it affects inflation, consumer awareness, weight loss drugs and more.
Fast food is often considered one of the cheapest ways to get a meal, but some deals that look like bargains may do more to boost restaurants’ profits than protect consumers’ wallets.
In the strategic space is a pricing tactic known as the “deception effect,” a psychological phenomenon in which a less attractive third option pushes customers toward the more expensive choice, according to the journal Electronic Commerce Research and Applications.
Fast-food chains often use this tactic to steer customers toward higher-priced items, Chowhound reports.
“It’s meant to make the ‘right’ choice seem obvious,” Mike Ford, CEO of Skydeo, told FOX Business. “The decoy effect proves that pricing is less about math and more about psychology. Brands that understand that win.”
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The chef is putting together a cheeseburger. (iStock / Stock)
A common example of the decoy effect in fast food is seen in the small, medium and large menu options, where the medium is only slightly less expensive than the large.
A medium order of fries can cost $4.70, while a large is just $5, making the large size seem like the obvious choice, according to Chowhound.
Ford noted that this strategy extends beyond fast food.
“This is happening with wine lists and restaurants,” Ford said. “Consumers are offered high-priced bottles so that the second most expensive bottle looks like a smart choice even though it’s still three to five times the normal price.”
Some marketing experts warn, however, that this strategy may come at a cost to long-term loyalty.
Two men order from a fast food restaurant. (iStock / Stock)
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“An educated consumer who visits these establishments will quickly grasp that they are paying more,” Frank Tortorici, vice president of media relations at Marketing Maven, told FOX Business. “The decoy effect does not help you serve and/or create your best and long-term customer.”
However, Jeffrey L. Degner, an economist at the American Institute for Economic Research, argues that price is only one factor driving fast food decisions and that the effect of deception is “not at all deceptive.”
“The word ‘decoy’ means that the customer is not getting what they really want,” said Degner. “But what some customers want more from a drive-thru is ease of ordering, speed or more caffeine in a big drink, rather than a few nickels.”
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A customer picks up a bag of food in a drive-thru. (iStock / Stock)
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Degner also pointed out that sometimes restaurants lose money on individual items – a strategy known as the “loss leader” – and rely on extras like fries and drinks to make a profit.
“The customer always has the option of buying the sandwich themselves, which leads to a potential loss for the restaurant,” Degner added. “This is far from an insidious trend on the fast-food side, and consumers have plenty of options and motivations when they pull up to the drive-thru.”
