Also named asymmetrical domination, that is a marketing strategy designed that induces us to buy more expensive products. Automakers have been using it more than ever
Imagine you are craving a steak dinner and you go to a restaurant. You browse the menu, and you see that your dish costs $50. Compared to pasta and chicken options of $35, it looks quite expensive, right? Then you browse some more, and you notice that the lobster option is available for a whopping $80.
If that fictional menu made you even more interested in that steak dinner, you would have to thank the decoy effect. That marketing strategy is successful for a number of reasons and, as a result, has made its way to multiple other sectors of the industry. Here, we are going to analyze it in the automotive world.
What is the decoy effect?
The strategy of pricing one menu item (the decoy) in a way that renders another one (the target) more attractive. In the example above, the steak is not the cheapest option. However, the lobster was made so more expensive that the steak appears to be a better deal. It looks like you will get more for your money.
We can also mention the case of fast-food restaurants. When they set the soda at $3 for the small, $7 for the medium and $8 for the large, that is decoy pricing as well. Here, the medium is the decoy because it was made excessively expensive so as to induce people to buy the large one, which is the actual target.
The “asymmetric domination” name comes from how the decoy is made. In the soda case, the medium is better than the small for offering more content but is worse for being more expensive. However, it makes the large one better twice for being just a little more expensive while offering even more content.
Asymmetric domination in cars
Here, decoy pricing is common in trim levels. The Volkswagen Jetta S, for example, starts at $20,665 in the USA as of today. It also has the Sport for $21,555, the SE for $24,385, the top-tier SEL for $28,385, and the performance oriented GLI for $31,585. We can observe that strategy in several opportunities at once here.
Companies will always want to move customers upwards in the menu. Not only to offer a better and more beautiful product, but also to obtain higher profit margins. Adding more items to the base car is relatively easy and cheap in terms of production but allows the company to charge proportionally more from us.
The S trim exists to make the Sport look good: it costs a little more and does not have that “base” image. Parallel to that, spending roughly 40% more on the SEL does not look much next to the GLI’s $30k+ price. At the same time, the $3k difference is low enough to make the GLI look interesting for emotional drivers.
What is not decoy pricing
At first, one can think that automakers do the same with car models. After all, it is easy to find a situation where one model is expensive enough to make another one more interesting. However, that is not a case of asymmetric domination for a simple reason: building a whole car model costs too much just for that.
In BMW’s lineup, for example, one could think that the X6 is expensive for the purpose of making the X5 a better deal. After all, the latter offers more room and is more practical. But that is a case of two products with separate purposes. What happens is that the target audience of one likes it better than the other.
The decoy effect requires adaptations in this industry because cars are a less flexible product than drinks or dishes. Making changes to them requires more effort, there is much more money involved, and target customers are more skeptical. Then again, none of that means that there is no room for innovations.
Latest decoy pricing example
Dodge has made the news these days because of the Hornet. While the compact SUV represents a major step in its reinvention, it can also be a risky strategy. After all, it is a badge-engineered Alfa Romeo Tonale. The US is one of the few markets where both will be available, and now we know each one’s prices there.
The Hornet has a GT trim for $31,590, an R/T for $41,590, and an R/T Plus for $46,590. The first one uses a gasoline engine while the others are hybrid. The Tonale has a Sprint trim for $ 44,590, a Ti for $46,590 and a Veloce for $49,090. All those three use the same hybrid powertrain. Can you see the decoy effect yet?
Dodge is more competitive, but it is based on low prices. Alfa Romeo has a premium image but struggles to establish itself in the region. Those prices make the Hornet attractive only at the base trim. If you want the hybrid, the Tonale brings more refinement as a whole for a price increment made small on purpose.
Do those biases have cons?
Of course. When it comes to junk food, inducing people to buy larger portions increases the risk of health problems. Moving on to cars, the biggest consequence is making you spend more than you wanted on a new car. And that comes with higher installments, higher interest, and more difficulty to make payments.
On the carmaker’s side, it must understand that image differentiation only goes so far. In that Alfa Romeo case, making the Tonale excessively expensive would drive even its best fans towards the Hornet (or to their competitors). The lower the price range, the less important image becomes compared to price.
If we broaden our scope, we can also think of long-term effects. Shooting brake cars, for example, never sold well for having too specific appeal. However, the fact that they cost more than a comparable station wagon only made things worse. It was a case of accidental decoy pricing that caused the opposite effect.
Now that you know everything about asymmetrical domination, you will be able to spot it in many sectors of the market. When it comes to cars, I am sure that this knowledge is going to help you feel a little more in control of your own selection process. What other cases of decoy effect have you seen on car prices?
Sources
- 2023 Dodge Hornet Full Pricing Is Out, and It Can Go Over $53,000 – Car and Driver
- 2023 Volkswagen Jetta, 2023 Volkswagen Jetta GLI – Volkswagen of America
- Holy Tonale! New 2024 Alfa Romeo Tonale SUV Starts at $44,590 – Car and Driver
- Why do we feel more strongly about one option after a third one is added? – The Decision Lab
