Decoy Pricing — 5 ways to implement a decoy pricing strategy for your brand

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Everyone’s bought something on a whim because it seemed like a fantastic deal. Ever noticed that very often products come in three options? While it may be partially because businesses want to offer different options to customers, smart marketing takes advantage of the decoy effect to lead customers to the most expensive purchase rather than to the one they may ordinarily make. Just think back to your last visit to the cinema — yes, pre-COVID. Now think about that temptation to buy popcorn. If there is a small and large size of popcorn and the small one is £3.50 and the large one is £7.50, most people will buy the small. However, if you add a medium at say £6.50, most people will buy the large because it’s only £1 more than a medium. The £6.50 option is the decoy.

The easiest way to spot this decoy pricing “trick” is when the cashier at the coffee shop says something like, “Would you prefer a large latte for just 50p more?” People tend to believe that “you get what you pay for.” Over time it has been translated to mean “expensive = good.” Usually, the “expensive = good” stereotype works out great. Robert B. Cialdini gives a great example of this in his book “Influence: The Psychology of Persuasion”. In it, he mentions how a jewellery shop owner managed to clear slow-moving turquoise pieces by accidentally doubling the price of the merchandise. Below are some ways in which you can use the decoy pricing to drive more sales:

One: Bundling for a “Perceived” Better Deal

The more the number of items you bundle together, the harder it is for the consumer to add up costs for all the individual items to make a judgement. Thus making it difficult to conclude if it’s a good deal. Last year my friend was looking to buy winter running gloves. He found a bundle that included socks, gloves, beanie and more. He didn’t blink before buying it. He thought it was a good deal for all this gear — forgetting that he only wanted gloves. Looks like a good way to use bundling is for getting rid of slow-moving merchandise. Success for the business merchant who was likely trying to get rid of their winter gear. Try this: Bundling together merchandise that is selling well along with slow-moving ones. The results may surprise you.

Two: Learn from the pros- $150 Armani T-Shirts Used as a Decoy

You walk into an Armani shop and see a tee-shirt selling for $150 — is it inexpensive (for Armani) or not? It doesn’t feel inexpensive. Nearby you spot another shirt for $75 right behind a pair of $450 jeans. “Maybe $75 isn’t so bad. After all, it is Armani” you think to yourself and proceed to buy it. The end of the month credit card statement hits your mailbox. You see that $75 price once again. Then you end up thinking why did you spend $75 on a black tee-shirt? The reason for this irrational behaviour is a phenomenon known as anchoring. Armani knows that very few people are going to buy that $150 t-shirt. But they also know that without it, their sales for the $75 one would plummet. Sure, there are the 1% who will only want the best, the most expensive and they have that available. But for most, the pricier option is there to make the primary choice ($75 t-shirt) look more attractive.

Three: The Importance of Irrelevant Options

A few years back I had subscribed to Entrepreneur magazine. While reading an article on their website I saw an ad for a print subscription. It seemed like a good price. I clicked through to the pricing page. Initially, I was puzzled by the pricing scheme. Digital-only is the same price as the pdf print edition- at $9/year. However, for only $1 more I could get both. It was a crazy good deal. Why on earth would they even have options for digital or print only if the price is pretty much the same between the options they offer? Then I remembered a famous TED talk by behavioural economist Dan Ariely that talks, among other things, about the importance of irrelevant options. It all started to make sense. Entrepreneur wanted me to pay for the digital + print subscription. To make me want to have it, they added, the decoy priced option — print — for only $1 less.

Four: The Seduction of Charm Pricing

Prices are typically just below a round number, aren’t they? Frequently, the ending number is 9 or 99. A price below a round number is called a “charm price.”The idea behind this is that it makes the price seem less than it is actually. The difference between $300 and $299 is only $1 but $299 “seems” a lot less. Because, in western cultures, we read from left to right, the first digit of the price resonates with us the most. That’s why we’re more likely to buy a product for $4.99 than an identical one for $5. The item that starts with a four just seems like a better deal than the one that starts with five.

In eight studies published from 1987–2004, charm prices were reported to boost sales by an average of 24% relative to nearby prices. And in late 2013 Gumroad released data that showed that indeed, charm prices lead to more sales. Charm prices too are a kind-of-decoy, in the way that they do tend to reduce the perceived value of the goods.

Five: How to Implement the Decoy Effect?

1. Choose your key product — the one you want to sell more of. Make sure it is popular with your customers.
2. Structure your key product — Remember, your key product should contain more benefits than the other products, and be higher priced.
3. Create a decoy — your goal is to make the decoy asymmetrically dominated by your key product and to increase your key product attractiveness as a result.
4. Have at least three offers — don’t add more than five (beware of the choice overload bias).
5. Price the decoy close to your key product (the high-priced option) — Choose same or a slightly lower price
6. Track. Track. Track. To ensure the effectiveness of the strategy you would need to capture as much data as possible from the ground. Fieldproxy is a comprehensive field data management tool for retailers that helps them capture customer customer feedback, promotional campaign performacne and much more.

The decoy effect is a method that can be used in almost every business. Give it a shot and test its influence on your results.

A trickery?

According to rational choice theory, the decoy effect should not exist in practice. However, this theory relies on the assumption that consumers’ purchasing decisions are perfectly “rational” and take into account all the “right information”. The truth is that the consumer does not often possess the “perfect” level of information about a product. As a result, consumers’ purchasing decisions are often made without taking into account all the information about any given item. This incites companies to wisely choose their marketing and pricing strategies, ensuring that imperfect information is sometimes deliberately provided to consumers to maximize both sales and margins. Is a trick or a genius marketing hack? No one can tell.

For more such stuff, check out — fieldproxy.com — the no.1 field sales management platform