How to Use The Decoy Pricing Strategy
It's effective. But is it ethical? Decoy pricing can help your customers make the right choice.
2 Years 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:
A slightly lower priced product with significantly lower product quality
A significantly higher priced product with only a slight increase in quality
The Camera Example
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:
Nikon - 10 hrs battery life, 20 x optical zoom, 600g (£329)
Sony - 5 hrs battery life, 16 x optical zoom, 350g (£284)
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:
Nikon - 9 hrs battery life, 18 x optical zoom, 700g (£339)
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 Wine Example
The second example the author gives is the wine choice presented in a back street bar:
French vin de pays (£3.45)
Italian pinot grigio (£4.15)
New Zealand sauvignon blanc (£5.20)
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.
Photo credit: Thank you to Zuzana Kacerová on Unsplash
Book credit: The Psychology of Price by Leigh Caldwell (blog)
My name is Martin and I've been your host for this article.
I am by no means a strong writer, but I hope you found it of value.
If so, why not sign up to our newsletter?
It's sent once a month with our latest tips and advice. We don't spam, share your info, or any such sort thing.
I also run a Facebook group called Small Business Website Help. It does what it says on the tin.
Lastest in Business Strategy
Establishing Credibility Published in Business Strategy on Tue 26 Nov 2019 14:30 Be Kind and Grow Your Business Published in Business Strategy on Thu 14 Nov 2019 10:06 Dealing with Negative Feedback Online Published in Business Strategy on Sun 10 Nov 2019 15:20
View All in Business Strategy View All Categories