If you’ve ever played video games, you’ll be well familiar with the decoy effect. It works by luring or enticing you away from your intended route, usually into a trap.
Sounds menacing, right?
Well often, decoy pricing is used by e-commerce retailers too.
You may have encountered decoy pricing before whether online or offline and never even realized it.
In this post, you’ll learn:
- What decoy pricing is
- Benefits of using the decoy effect within your store
- Which industries benefit from decoy pricing
- Examples of stores who have nailed decoy pricing
- Some pitfalls to consider before you implement this pricing strategy.
What is decoy pricing
Decoy pricing is a type of e-commerce pricing strategy that aims to guide a potential customer towards a specific product by presenting bad choices as well.
Although it might initially seem like using this pricing strategy means you’re tricking your customers, you’re not.
You could trick your customers if you showed low prices for some products but these products were always out of stock forcing customers to have to spend more money.
This is unethical and will lead to your customers leaving you and moving towards your competitors.
Instead, this pricing strategy simply makes other offers feel less appealing. Your customers still have full control as to which one they buy.
Look at the example below.
2 Apples: $3
4 Apples: $12
10 Apples: $15
Which would you go for?
It works because of cognitive bias. Cognitive bias is the human brain’s natural tendency to make inaccurate assumptions or judgments. Each cognitive bias is caused by something specific.
In this case, it’s either caused by things being observed or a natural disposition of the mind.
In e-commerce pricing, one price point is more desirable than other options because of the way it’s presented in a group.
Benefits on your bottom line
Decoy pricing can have a positive effect on your profits and the bottom line as it forces your customers to consider a higher priced item they believe has more value.
Because customers feel like it’s better value to buy one option over another, you have the power to influence their ideas and have some sort of control as to which product they buy.
Which industries does this pricing strategy work in
Decoy pricing works well in industries where there are products that can have different price points. Perhaps you sell one product in multiple packs or perhaps you can add extra features.
If you sell all your products as individuals and they all have identical features, this pricing strategy won’t work for you as there is nothing to compare or anchor the price next to.
If we look at the example below, you can buy MP3 player A for $400 and it includes 30GB storage. You can buy MP3 Player B for $300 and it includes 20GB storage or you can buy MP3 player C for $450 and it comes with 25GB storage.
MP3 player C is more expensive than both A and B but has less storage than A. What this does it causes you to discount certain options.
It’s a silly decision to go for MP3 player C because for less money you could have more storage.
So you’re much more likely to opt for the expensive option as it provides you with better value for money.
Apple is another great example of decoy pricing.
If you were to buy an iPhone, you get to decide what capacity you want the phone to have. 64GB is 1,099, 256Gb is 1249 and 512GB is 1449.
If you look at the numbers, you can get 8 times the amount of GB but it doesn’t mean you have to pay 8 times the price.
Points to consider before implementing decoy pricing
Before you begin using decoy pricing, think about your own products. Does decoy pricing actually make sense for your business?
If you sell products that could be packaged into bundles, it could make sense.
Some industries where it works well include:
- Dog products
- Electronics – where you can alter the features to make one more appealing than the other
- Make up and beauty
Now you have a clearer idea of what decoy pricing is, the pitfalls to consider as well as which industries it works best for.
Keep in mind that decoy pricing doesn’t work for every store and like with every pricing strategy you need a certain degree of experimentation and evaluation in order to know if you’ve hit the optimum price point.
Why not try it for yourself though?
Have you ever used decoy pricing or seen it used online or offline? Leave a comment below.