What is the decoy effect?
The decoy effect, also known as the asymmetric dominance effect, is the approach determined by a particular change in consumers' preference between several key options while also being presented with a third option. At this point, the third option is asymmetrically dominated, meaning it is inferior to another option by all means. In short, the decoy effect presents a method of creating a decoy, an option that will be inferior to another option, the one the business intends to promote in the first place.
Decoy pricing is used to create a particular vision of an option one intends to promote. When deciding between several given options, an inferior third option or a decoy changes the perception of the previous preferences between the initial two options. Decoy pricing can be considered a marketing strategy directed toward changing the linear perception of how the market operates. Essentially, the decoy effect creates a particular foundation for promoting more favorable options.
Decoy effect in marketing
As it was mentioned, the practice of introducing a decoy directly correlates to the marketing approach. In the area, decoy pricing is conducted in a series of key steps:
- Choosing a key product. When introducing decoy pricing into marketing, the primary aspect is selecting the product the company wants to sell and promote. One of the key aspects is to ensure that the favored option is most popular among clients.
- Structuring the product. While promoting the selected product, it is important to ensure it offers more client benefits than a different option. Besides, considering additional advantages and features, it should be priced higher.
- Creating a decoy. The introduction of decoy should be presented in the manner in which a favored product will be dominating. The key option must asymmetrically dominate the decoy. As an outcome, decoy increases the likeliness of the key product.
- Introducing at least three options. The rule of thumb dictates the introduction of decoys should exist with at least two more options. In general, there should be no more than five options. Having too many products can lead to choice overload.
- Pricing the decoy. The decoy should be priced in the direct link with the key option. While the primary product is highly-priced, the decoy should have a lower price.
- Tracking the decoy pricing. The effectiveness of the strategy depends on tracking data from the decoy. Based on the given data and analysis, one can direct a promotional campaign accordingly.
TThese steps illustrate how to decoy pricing works in marketing. Following the system, as mentioned earlier, ensures the proper integration of decoy and promotion of the key product.
Asymmetric dominance effect
The decoy effect also presents itself as an asymmetric dominance effect. In such a case, the asymmetric domination means the decoy will be priced according to the principle that makes the key option more attractive. The outcome shows that the decoy is asymmetrically dominated by the selected option utilizing different features like quantity, quality, and value compared to the primary option.
In the scheme of asymmetric dominance effect, the decoy is not intended to sell. In turn, the theory stands behind the principle challenging similarity heuristic. Essentially, the asymmetric dominance effect challenges the idea that introducing the new product will take a given market share from the existing products, thus reducing the chances clients will choose the original option.
One of the key principles behind the decoy strategy is to present new, less favorable options that would increase the attractiveness of the key option while also trying to avoid a choice overload. It is about balancing the market while considering the potential effect on the prices of an original product the decoy brings.
Grounded in psychology and marketing, the decoy strategy reduces potential consumers' potential overload or anxiety when facing several options. However, when the asymmetric dominance effect is introduced, the decoy steers the consumers’ attention toward the original product. Naturally, that is why the key option asymmetrically dominates the decoy.
Decoy strategy is directed toward introducing several options to the market while reducing the choice overload by making one of the products asymmetrically dominated by the key option.
Decoy pricing example
While illustrating the decoy pricing in action, consider the following example - you are looking to buy a TV. Two key options are meeting your budget estimates. There is one dominating product. However, it is $80 worth more, and it offers a range of additional options. At this point, the company introduces a third option with a slightly lower price to the key product. Yet, the decoy is less sophisticated and has lower quality.
Keeping the example in mind, the introduction of decoy will make the most expensive option more attractive. The consumer will reconsider all the pros and cons and perceive additional benefits offered by the primary product as worth paying more.
Decoy pricing is based on several key features of human psychology. In marketing, the decoy effect is used to make one particular product more attractive than other options. The introduction of decoys should be associated with asymmetrical domination of such products.