Decoy Pricing Strategy

Decoy pricing is a strategy in which a third, less attractive option is introduced to influence customers toward choosing a higher-priced or preferred option. This psychological pricing tactic works by presenting a “decoy” product that makes a specific choice, often the middle or higher-end option in a set, appear more appealing. For example, if a company offers small, medium, and large sizes, the medium size might be priced close to the large size, making the large seem like the better value.

Decoy pricing is effective because it leverages the power of comparison, helping customers justify spending more by framing the higher-priced item as a better deal. This strategy is commonly used in retail, food service, and subscription plans. For decoy pricing to be effective, the decoy option must be similar enough in price or features to the target option to create a meaningful comparison. If implemented poorly, customers may perceive the tactic as manipulative, potentially damaging trust. Effective decoy pricing subtly influences customer decisions without creating a sense of pressure.

An example of a decoy price is a movie theater offering popcorn in three sizes: small for $5, medium for $8, and large for $9. The medium size acts as the "decoy" because it is priced close to the large size, making the large size seem like a much better deal, even if the customer initially intended to buy the small size.

Price decoys refer to strategically introduced pricing options designed to influence customer decisions. The decoy option, which is less attractive in terms of value, encourages customers to choose a more profitable option by making it appear as the best deal through comparison.

An example of a decoy is a subscription plan offering three tiers:

• Basic Plan is $10 per month
• Standard Plan is $20 per month
• Premium Plan is $21 per month

Here, the Standard Plan acts as the decoy because it makes the Premium Plan appear to offer much better value for just $1 more.

The decoy effect in pricing is a psychological phenomenon where the presence of a less attractive, "decoy" option influences customers to choose a specific alternative. The decoy serves as a comparison point, making the preferred option appear more attractive and leading customers to perceive it as offering better value.