Let’s consider a situation. There is a company with two products, A and B. Both these products have their own merits and demerits. Product A has relatively less features, but it’s price is low. Product B, on the other hand, has more features but it’s more expensive. Consumers tend to pick both these products depending on their needs. Now the company introduces a third product, C. The asymmetric dominance theory says that you can affect the consumer behavior using this third product. You can make the consumers shift towards product A or product B by designing product C in different ways. Now how is that possible? How can we change consumer preference between A and B without even modifying these products?
Asymmetric Dominance Effect
Asymmetric Dominance is a phenomenon observed in Decision Theory. The asymmetric dominance effect (also called the decoy effect) is a phenomenon where consumers tend to have a change in preference between two options when presented with a third option that is asymmetrically dominated. Wait a minute, asymmetrically dominated? An option is said to be asymmetrically dominated when it is inferior in all aspects with respect to one option but inferior in some aspects and superior in other aspects with respect to the other option. This makes it look like an even balance with respect to the other product.
This third product is completely dominated by one option and only partially dominated by the other. When the asymmetrically dominated option is present, a higher percentage of consumers will prefer the dominating option than when the asymmetrically dominated option is absent. Sounds silly right? Are consumers that naive? Well, turns out they are! The third option is therefore used as a decoy which is used to increase preference for the dominating option.
Let’s consider the following products:
A) Hard Drive with 500 GB for $150.
B) Hard Drive with 300 GB for $100.
Now, between these two products, people can either prefer A, because it has more hard drive space, or B, because it has a lower price point. This is where asymmetric dominance comes into picture. If I want to increase the number of consumers buying product A, then I will introduce a third option:
C) Hard Drive with 400 GB for $170.
The introduction of a third option (C) that is more expensive than A and B, and has less hard drive space than product A, makes it asymmetrically dominated by product A. Hence, consumer preference will shift towards A just because of the introduction of this third option, making it look like the best deal. Similarly, if you want to shift the consumer preference towards (B), what would you do? Think about it.
What if you get caught with this decoy?
There will also be a percentage of consumers that will realize that you offering a decoy to try to attract them to one model. Even though this is a small percentage that will “catch on” to what you are doing, some of them will still think otherwise. So how do we deal with these people? If you want to lower this percentage, you can introduce a new feature. This new feature must be something totally irrelevant in the decision making process that nobody cares about. But at the same time, it must be something that can be used as a justification to the consumer. The most common example is by offering a strange color, like orange, on the dominated option (C in this example) that nobody wants in the first place. Who will buy an orange colored hard drive?
This theory has vast applications. It can be applied to anything from pricing in your ads to pricing on your sales page. Keep in mind that even a Google Adwords ad, people are making a decision where to click. Anytime someone is making a decision and there are many price points and product features available as options then the decoy theory can be utilized. This theory comes up everywhere in our daily lives. In fact, we fall for it more often than we realize. That’s the beauty of a good decoy!