It's effective. But is it ethical? Decoy pricing can help your customers make the right choice.
5 Months Ago in Business Strategy
Decoy pricing aims to increase the sales of a product by introducing a "decoy" that makes the target product appear "the obvious choice" by comparison.
We don't intend to sell the decoy, only to provide a counterpoint with which to compare the target product.
The decoy is either:
In his book "The Psychology of Price", Leigh Caldwell gives a great example of decoy pricing.
His friend is trying to choose between 2 cameras:
This is a tough choice. Battery life and camera weight are both important factors to pro photographers who frequently carry a camera around all day long.
The shop assistant helped him to choose.
She brought out a third camera for him to look at. The spec of this was:
It was easier to make a choice now. The dude walked out with the better Nikon.
Clearly, nobody would buy the second Nikon. But it does provide a clear reference point against which to compare the first.
While the first Nikon is clearly better than the second, the Sony is not clearly better or worse than anything.
A decoy reassures us that we're making a good choice. It lets us feel we're making a rational decision. It gives the logical part of our brain a solid justification for choosing the target product.
This effect is particularly powerful when we're comparing products with which we are unfamiliar, or those with lots of technical attributes.
The second example the author gives is the wine choice presented in a back street bar:
You probably already know that most people choose the middle option. But why is this?
Because in the absence of product knowledge (most of us are not wine connoisseurs) the middle option feels like a "reasonable" and "balanced" choice.
More specifically, as consumers, the natural tendency is to aim for both quality AND value wherever possible.
Unless we know better, we let price guide us as to an indication of quality. So the middle option is perceived as providing a reasonable amount of both.
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