The Decoy Effect in Marketing
What Is It?
The **Decoy Effect**, also formally known as the **Asymmetric Dominance Effect**, is a cognitive bias in which consumers' preferences between two options are influenced by the introduction of a third option, the "decoy," that is asymmetrically dominated. The decoy is strategically designed to be clearly inferior to one of the original options (the "target") but not to the other (the "competitor"). Its sole purpose is to make the target option look disproportionately more attractive and rational by comparison, thereby shifting the consumer's choice toward the target. This phenomenon demonstrates that human decision-making is often relative and context-dependent, rather than based on absolute value.
The classic real-world example of the Decoy Effect is often attributed to *The Economist* magazine's subscription options, as famously studied by behavioral economist Dan Ariely. The original options were: a) Web-only subscription for $59, and b) Print-and-Web subscription for $125. When a third option was introduced—c) Print-only subscription for $125—the purchasing behavior changed dramatically. The Print-only option (c) served as the decoy because it was clearly inferior to the Print-and-Web option (b) for the exact same price, making the Print-and-Web option (the target) appear to be an overwhelmingly superior value. The presence of the decoy option (c) significantly increased the number of people who chose the most expensive Print-and-Web option (b).
How It Works
| The Decoy Effect is rooted in several psychological mechanisms that influence how consumers evaluate choices and make decisions. | |
|---|---|
| Mechanism/Theory | Explanation |
| :--- | :--- |
| **Relativity** | Humans do not evaluate value in absolute terms but rather in relation to other available options. The decoy provides a favorable point of comparison, making the target option seem like a clear winner. |
| **Choice Simplification** | When faced with a difficult choice between two equally attractive but different options (A and B), the decoy (C) simplifies the decision. Since C is obviously inferior to A, the consumer can easily eliminate C, and the clear dominance of A over C makes A the path of least cognitive resistance. |
| **Asymmetric Dominance** | The decoy is "asymmetrically dominated" by the target option. It is worse than the target in every way, or worse in a key way for the same price, but not worse than the competitor in every way. This makes the target option the only logical, rational choice. |
| **Contrast Effect** | The decoy option enhances the perceived differences between the target and competitor options. The target's advantages are highlighted and magnified when contrasted with the clearly inferior decoy. |
Quote from a Popular Marketer
"To explain the decoy effect further, let me tell you something about bread-making machines. When Williams-Sonoma first introduced a home 'baking machine,' sales were slow. So they hired a marketing research firm, which suggested they introduce a second home bread maker, a similar machine that was priced higher than the first one. Sales of the first machine doubled."
— Dan Ariely
10 Tips on How to Use It in Marketing
- **Implement a Three-Tiered Pricing Model:** Always offer three options: a low-cost option (Competitor), a high-value option (Target), and a middle option (Decoy). Price the Decoy very close to the Target but intentionally reduce its features or value, making the Target the obvious choice.
- **Design a "Sacrificial" Product:** Introduce a product or service that is not intended to sell well but is priced and featured specifically to make your main, high-profit product look like a steal. This sacrificial option is the decoy.
- **Use Time-Based Decoys for Subscriptions:** Offer a monthly subscription (Decoy) at a price that is disproportionately high compared to the annual subscription (Target). For example, $20/month vs. $199/year (which is $16.58/month), making the annual plan the clear value proposition.
- **Create a Feature-Reduced Decoy:** For software or digital products, offer a "Standard" package (Decoy) that lacks one or two critical features that are included in the "Premium" package (Target), even if the price difference is minimal. This pushes users to the Premium tier.
- **Bundle a Decoy Offer:** When selling product bundles, create a smaller, less appealing bundle (Decoy) that is priced similarly to a larger, more comprehensive bundle (Target). The Decoy's existence validates the price of the Target bundle.
- **Highlight a "Good, Better, Best" Comparison:** Clearly label your options to guide the customer. The Decoy should be labeled "Good," the Competitor "Better," and the Target "Best," with the pricing structure reinforcing the perceived value jump from "Better" to "Best."
- **Apply the Decoy to Physical Product Sizing:** In food and beverage, offer a small, medium, and large size. Price the medium (Decoy) only slightly less than the large (Target) to encourage customers to "upgrade" to the large for a marginal cost.
- **Leverage Decoys in Sales Negotiations:** When selling a high-ticket item (e.g., a car or real estate), start by showing a slightly inferior, overpriced option (Decoy) before presenting the main, desired option (Target). The Target will immediately seem more reasonable and attractive.
- **Use Decoys for Upselling:** When a customer selects a basic product (Competitor), immediately present a slightly better, but still overpriced, alternative (Decoy) alongside your main upsell product (Target). The Decoy makes the Target upsell seem like a logical, high-value step.
- **Ensure the Decoy is Asymmetrically Dominated:** The decoy must be clearly inferior to the target option on all or most important attributes. If the decoy is too attractive, it will cannibalize sales from the target, defeating the purpose of the effect.
References
- Ariely, D. (2008). *Predictably Irrational: The Hidden Forces That Shape Our Decisions*. HarperCollins.
- Huber, J., Payne, J. W., & Puto, C. (1982). Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis. *Journal of Consumer Research*, 9(1), 90–98.
- Simonson, I., & Tversky, A. (1992). Choice in Context: Tradeoff Contrast and Extremeness Aversion. *Journal of Marketing Research*, 29(3), 281–295.
- The Decision Lab. (n.d.). *Decoy Effect*. Retrieved from https://thedecisionlab.com/biases/decoy-effect