Decoy pricing, also known as asymmetric dominance or the decoy effect, is a pricing strategy that involves presenting consumers with a third, less attractive option (the decoy) to influence their decision-making process between two other options. The purpose is to make one of the original options more appealing by creating a relative contrast.
Typically, the decoy is priced in a way that makes one of the original options appear as a better value or a more attractive choice. Consumers, when faced with the decoy, are more likely to choose the option that the seller wants to promote.
For example, consider a scenario where there are two options for a product:
Option A: $50 (basic version) Option B: $100 (premium version)
To apply decoy pricing, a third option (decoy) is introduced:
Decoy: $80 (similar to Option B but slightly more expensive)
In this case, the decoy makes Option B seem like a better deal because it’s only $20 more expensive than the decoy, whereas Option A now appears less attractive. This strategy aims to influence consumer perception and encourage them to choose the option that the seller wants to promote (Option B in this example).
Decoy pricing leverages cognitive biases in decision-making, emphasizing the relative value of options rather than evaluating them in isolation. It’s a technique often employed in marketing to guide consumers toward specific choices that benefit the seller.