Decoy Pricing — Helping Customers Make the ‘Right’ Product Choice
August 2, 2011 3 Comments
In today’s post I will be looking at decoy pricing. As the name infers, decoy pricing involves adding a ‘decoy’ item to your product lineup, which leads customers to purchase the option you want them to buy.
ADD AN INFERIOR OPTION
In his brilliant book Predictably Irrational, author Dan Ariely shares a great example of the effect of decoy pricing. He ran an experiment using subscription offers to The Economist magazine. Participants were given one of two offers.
$59 – Economist.com subscription (16% chose)
$125 – Print subscription (0% chose)
$125 – Print & web subscriptions (84% chose)
$59 – Economist.com subscription (68% chose)
$125 – Print & web subscriptions (32% chose)
The results from this experiment are quite stunning. The only difference between the two offers is the inclusion of a third “decoy” choice print subscription in Offer A. No one chose the decoy item, but its mere presence made the print & web subscription option look like a no-brainer. Offer B takes a bit of thinking, whereas Offer A made the decision easy by giving consumers a default option. This experiment is one of many that show that presenting one option as a default option increases the chance it will be chosen.
ADD AN EXPENSIVE OPTION
In the above example, adding an inferior, but similarly priced product (print only subscription) helped increase sales of the more attractive print & web subscription by reinforcing its value. Another decoy pricing strategy is to add an expensive option.
Let’s say for example you sell watches; $100 for the basic and $200 for the premium version. Some people buy the premium option, but most elect for the basic. You could add a decoy super-premium option priced at $500. Shoppers probably aren’t going to buy it, but it will boost sales of the $200 option because it suddenly seems like a great value.
TRADE CUSTOMERS UP
Steve Jobs and Apple are genius when it comes to decoy pricing. Let’s take a look at pricing for the iPad:
A shopper goes in thinking an iPad will only cost them $499 because 16GB is all they need. But for $100 they can get double the storage amount and $200 more will get them 4x more storage. Many end up with the most expensive 64GB option because it would be silly to purchase one of the other options. Apple’s decoy pricing strategy trades shoppers up by making the most expensive version the “right choice”.
If you enjoyed this article, you may be interested in some others from the Understanding Customer Thinking series: