Decoy pricing is a strategic marketing technique used by businesses to influence customer decisions by presenting multiple options.
Understanding Decoy Pricing
Based on the provided reference, decoy pricing is when a business presents customers with several different prices in an effort to steer them to a particular product or service, called the target. This method works by strategically introducing a less appealing option, known as the decoy, which makes the desired product (the target) seem significantly more attractive in comparison.
The core idea is not necessarily to sell the decoy product itself, but rather to highlight the value of the target product or service. By introducing another slightly less desirable option, called the decoy, the target looks more appealing.
How it Works
Decoy pricing leverages psychological principles to guide consumer choice. Typically, a business will offer at least three options:
- The Target: The product or service the business wants customers to choose.
- The Decoy: An option priced and structured in a way that makes the target appear superior in value, often being slightly worse or disproportionately expensive compared to the target.
- A Third Option (often the lowest price): This serves as a baseline.
The decoy option is deliberately designed to be unattractive when compared to the target, often by offering slightly less value for a similar price, or a significantly higher price for only slightly more value. This contrast effect highlights the better value proposition of the target product.
Practical Examples
Imagine a company offering subscriptions:
- Option A (Lowest Price): Basic access for \$5/month.
- Option B (The Decoy): Access without premium features for \$10/month.
- Option C (The Target): Access with premium features for \$12/month.
In this scenario, Option B (the decoy) makes Option C (the target) look like a much better deal. For just an extra \$2, you get premium features, whereas Option B offers significantly less than Option C for only a \$2 saving. The decoy shifts perception, making the \$12 option seem highly valuable compared to the \$10 option.
Why Businesses Use Decoy Pricing
Businesses employ decoy pricing for several reasons:
- Increase Sales of Specific Products: Steer customers towards high-margin or preferred items.
- Influence Perceived Value: Make the target product's price seem more reasonable or attractive.
- Simplify Decisions: For customers overwhelmed by choices, the decoy can make the "best" option stand out more clearly.
By carefully structuring pricing tiers, businesses can subtly influence customer behavior and increase sales of their desired offerings.
