Ever wonder why you sometimes choose a more expensive option when shopping? It might not be just because you like spending money. There's a clever marketing tactic at play called decoy pricing, and it's shaping your decisions more than you realize.

Decoy pricing is a strategy where marketers add a third option to their pricing lineup that's designed to make one of the other choices look more appealing. This extra option isn't meant to be chosen - it's there to nudge you towards a specific choice. It's like adding a plain cheese pizza to the menu right next to a deluxe supreme pizza for the same price. Suddenly, that supreme pizza looks like a much better deal.

This tactic taps into how our brains make comparisons and decisions. When we see three options instead of two, we tend to focus on comparing the two most similar choices rather than considering each option independently. By carefully crafting these choices, businesses can guide customers towards the option they want to sell most.

While it might sound manipulative, decoy pricing can actually help customers feel more confident in their choices. It simplifies decision-making by providing a clear point of comparison. For businesses, it's a low-effort way to potentially boost sales of higher-priced items or bundles. That's why understanding and considering decoy pricing can be valuable for any company looking to optimize its pricing strategy.

Why this works

Decoy pricing works because it taps into fundamental aspects of human decision-making and perception. Here's why it's particularly effective for digital businesses:

• Relative value perception. Our brains are wired to make comparisons rather than evaluate absolute values. In a digital context, where tangible products aren't physically present, this effect can be even stronger. For example, a SaaS company offering three pricing tiers can use a decoy middle tier to make the highest tier seem more attractive.

• Choice simplification. When faced with multiple options, people often struggle with decision paralysis. Decoy pricing actually simplifies the choice by providing a clear point of comparison. This is especially useful for complex digital products or services where features and benefits might not be immediately obvious.

• Anchoring effect. The decoy price serves as an anchor, influencing how customers perceive the value of other options. For instance, an e-learning platform could offer a basic course for $50, a slightly more comprehensive course for $95, and a full bundle for $100. The $95 option anchors the perception of the $100 bundle as a great deal.

• Loss aversion. People are more motivated by the fear of losing out than by the prospect of gaining something. A decoy option can create a sense of "missing out" if not choosing the target option. An e-commerce store might offer a single product for $40, two for $70, or three for $75, making the three-pack seem like the obvious choice to avoid "losing" value.

• Increased perceived value. By introducing a less attractive option, the target option's perceived value increases. A digital marketplace could offer basic seller tools for $20/month, advanced tools for $35/month, or a "pro" package with just one extra feature for $40/month. This makes the $35 option seem much more valuable in comparison.

• Justification for premium choices. Decoy pricing provides logical justification for choosing a more expensive option. This is particularly useful for digital products where the cost of goods is low, and customers might be more price-sensitive. A stock photo website could offer 10 images for $15, 50 images for $50, or unlimited images for $55, making it easy for users to justify the highest tier.

To implement decoy pricing effectively in your digital business:

• Identify your target option. Determine which product or pricing tier you want to promote most.

• Create a decoy. Design an option that's slightly worse than your target but priced similarly or higher.

• Test and iterate. Use A/B testing to refine your pricing structure and measure the impact on conversion rates and average order value.

• Consider ethical implications. While decoy pricing is a powerful tool, it's important to use it responsibly and ensure that all options still provide genuine value to customers.

By understanding and applying decoy pricing strategically, digital businesses can guide customer choices, increase conversions, and boost revenue without resorting to aggressive sales tactics or compromising on value.

How you can steal this

Here's how you can implement decoy pricing in your digital business:

1. Identify your target offering. Determine which product, service, or pricing tier you want to promote most heavily. This could be your highest-margin item or the one that provides the most long-term value to your business.

2. Create a strategic decoy. Design an option that's slightly inferior to your target but priced similarly or even higher. For example:

• SaaS company. If your target is a $99/month "Pro" plan, create an $89/month "Plus" plan with noticeably fewer features.
• Digital course platform. Offer a $199 single course alongside a $249 bundle of three courses, making the bundle appear more valuable.

3. Present options effectively. Display your pricing or product options side-by-side, making it easy for customers to compare. Use visual cues like highlighting or positioning to draw attention to your target offering.

4. Highlight the value proposition. Clearly communicate the benefits of your target option, especially in comparison to the decoy. Use phrases like "Best Value" or "Most Popular" to guide customer perception.

5. Test and optimize. Use A/B testing to refine your pricing structure and measure the impact on conversion rates and average order value. Try different price points, feature sets, and presentation styles to find what works best for your audience.

6. Consider multiple decoys. For more complex product lines, you might use multiple decoys to guide customers towards different target options based on their needs or budget.

7. Apply to bundling strategies. Use decoy pricing to make product bundles more attractive:

• E-commerce store. Price a single item at $40, two at $75, and three at $80 to push customers towards the larger purchase.
• Digital asset marketplace. Offer 10 downloads for $29, 50 for $99, or unlimited for $129, making the unlimited option seem like a no-brainer.

8. Use in subscription tiers. Leverage decoy pricing in your subscription model:

• Streaming service. Offer a basic plan at $8.99, a standard plan at $13.99, and a premium plan at $14.99 to drive users towards the highest tier.

9. Implement in upsells and cross-sells. Use decoy pricing to make upgrades more appealing:

• Project management tool. When a user hits their storage limit, offer 50GB extra for $5/month, 100GB for $8/month, or 1TB for $10/month.

10. Consider time-limited offers. Combine decoy pricing with urgency:

• Online course platform. Offer a course for $199, or a limited-time bundle including the course plus bonus materials for $229.

11. Apply to freemium models. Use decoy pricing to encourage upgrades from free plans:

• Analytics software. Offer a free plan, a $29/month "Pro" plan with limited features, and a $39/month "Business" plan with significantly more value.

Remember, while decoy pricing can be highly effective, it's crucial to use it ethically. Ensure that all options provide genuine value to customers and avoid creating intentionally bad offerings solely for manipulation. The goal is to guide decisions, not to deceive.

By implementing decoy pricing strategically, you can nudge customers towards higher-value purchases while simplifying their decision-making process, ultimately leading to increased conversions and customer satisfaction.

Examples of decoy pricing

Here are some real-world examples of decoy pricing in action for digital businesses:

• SaaS company. A project management tool offers three pricing tiers: Basic ($29/month), Pro ($79/month), and Enterprise ($99/month). The Pro plan is the decoy, making the Enterprise plan seem like a great deal for just $20 more.

• E-learning platform. An online course provider prices their offerings as follows: Single course ($199), Three-course bundle ($399), All-access pass ($449). The three-course bundle acts as a decoy, pushing users towards the all-access pass.

• Digital asset marketplace. A stock photo website offers subscription plans: 10 images/month ($29), 50 images/month ($99), Unlimited images ($129). The 50 images plan serves as a decoy to make the unlimited option more appealing.

• Streaming service. A video streaming platform presents these options: Basic (SD, 1 screen, $8.99), Standard (HD, 2 screens, $13.99), Premium (4K, 4 screens, $14.99). The Standard plan is the decoy, making Premium look like a no-brainer for just $1 more.

• Email marketing tool. An email service provider structures their pricing as: Starter (500 contacts, $9/month), Growth (2,500 contacts, $29/month), Pro (5,000 contacts, $35/month). The Growth plan acts as a decoy to push users towards Pro.

• Web hosting company. A hosting provider offers: Shared hosting ($5/month), VPS hosting ($30/month), Dedicated server ($35/month). The VPS option is the decoy, making the dedicated server seem like a steal.

• Mobile app subscription. A productivity app presents these plans: Monthly ($9.99/month), Yearly ($99.99/year, equivalent to $8.33/month), Lifetime ($199.99). The yearly plan serves as a decoy to make the lifetime option more attractive.

• Online storage service. A cloud storage company prices their plans: 100GB ($1.99/month), 200GB ($2.99/month), 2TB ($9.99/month). The 200GB plan is the decoy, encouraging users to jump to the much larger 2TB option.

• Freelance marketplace. A platform for hiring freelancers offers membership tiers: Basic (free), Plus ($10/month, 50 connects), Professional ($15/month, unlimited connects). The Plus tier acts as a decoy to push users towards Professional.

• Website builder. A drag-and-drop website creation tool structures their plans: Personal ($6/month), Business ($25/month), Business Plus ($30/month). The Business plan serves as a decoy to make Business Plus seem like a better value.

In each of these examples, the businesses have strategically placed a decoy option to guide customers towards their preferred offering. This tactic simplifies decision-making for customers while potentially increasing the average order value for the company. Remember to always test different pricing structures to find what works best for your specific audience and product.