In his brilliant book Predictably Irrational, author Dan Ariely shares a
great example of the effect of decoy pricing. He ran an experiment using
subscription offers to The Economist magazine.
Participants were given one of two offers.
Offer A
$59 –Economist.com subscription (16% chose)
$125 – Print subscription (0% chose)
$125 – Print & web subscriptions (84% chose)
$59 –Economist.com subscription (16% chose)
$125 – Print subscription (0% chose)
$125 – Print & web subscriptions (84% chose)
Offer B
$59 – Economist.com subscription (68% chose)
$125 – Print & web subscriptions (32% chose)
$59 – Economist.com subscription (68% chose)
$125 – Print & web subscriptions (32% chose)
The
results from this experiment are quite stunning. The only difference between
the two offers is the inclusion of a third “decoy” choice print subscription in
Offer A. No one chose the decoy item, but its mere presence made the print & web subscription option
look like a no-brainer. Offer B takes a bit of thinking, whereas Offer A made
the decision easy by giving consumers a default option. This experiment is one
of many that show that presenting one option as a default option increases the
chance it will be chosen.
ADD AN EXPENSIVE OPTION
In
the above example, adding an inferior, but similarly priced product (print only subscription)
helped increase sales of the more attractive print & web subscription by
reinforcing its value. Another decoy pricing strategy is to add an expensive
option.
Let’s
say for example you sell watches; $100 for the basic and $200 for the premium
version. Some people buy the premium option, but most elect for the basic. You
could add a decoy super-premium option priced at $500. Shoppers probably aren’t
going to buy it, but it will boost sales of the $200 option because it suddenly
seems like a great value.
TRADE CUSTOMERS UP
Apple
is genius when it comes to decoy pricing. Let’s take a look at pricing for the
iPad:
A shopper goes in thinking an iPad will only
cost them $499 because 16GB is all they need. But for $100 they can get double
the storage amount and $200 more will get them 4x more storage. Many end up
with the most expensive 64GB option because it would be silly to purchase one
of the other options. Apple’s decoy pricing strategy trades shoppers up by
making the most expensive version the “right choice”.
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