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The Decoy Effect

I’m about to have a birthday, landing me with an age featuring a zero on the end of it, and naturally, I’m currently viewing everything through a nostalgic lens. This led me to take a look at the articles I was writing ten years ago, and one that jumped out was about ‘asymmetric dominance’. This psychological technique in sales was less common back then, but I see it all over the place now. I hope I can be forgiven for revisiting it a decade on!

Asymmetric dominance (or the ‘decoy effect’) is a phenomenon where customers change their relative opinions about two options when presented with a new, third option. It works something like this. Let’s say we offer two types of widget, one with a three-star performance at £100 and one with a five-star performance at £200. Sales tend to divide evenly between the two, depending on whether customers prioritise cost or performance.

Now, suppose we introduce a four-star performance widget, but not at £150 as might be expected, but at £250? What happens? It turns out that the old £200 model is perceived to be the most desirable of the three, and sales shift to that, even though nobody buys the new model.

If the desired outcome was to make that sales shift, we may have achieved it with very little effort.

So how is it done?

How do we justify the seemingly irrational decision to sell the four-star widget at £250? We introduce a feature that nobody cares about (“it’s orange!”) and which won’t persuade anybody to buy it …but which appears to account for the price tag.

Interestingly, this could be used if a competitor’s product was well known and was routinely being included in buying decisions. If we’re selling a five-star product and our competitor is offering the cheaper three-star product, perhaps we can swing things our way with a ‘decoy’ offering that makes our five-star product seem the best value of the three. It’s something that I see used frequently now.