Decoy Pricing

The decoy effect is defined as the phenomenon whereby consumers change their preference between two options when presented with a third option. So, coming from this, decoy pricing is just a way of making the third option look more attractive to nudge the customers towards a more profitable option.

Most people tend to avoid the extremes and choose the middle option. To understand this better let’s take the example of a chocolate box priced at 3 different values. Now the brain will automatically eliminate the cheapest option considering it to be inferior to the rest and for the most expensive one it will start evaluating it for its worth and the add-ons, so eventually, the brain will go with the middle option.

So, the aim of the decoy pricing strategy is to guide the target audience towards a specific product by presenting an inferior choice.

4  steps for Decoy Pricing:

1. Determine the target item - First, you need to decide the item that you want to sell that would get you the maximum profit based on its features.
   

2. Present 3 products - Once you decide on the target item, you need to put two other items in the same category with varying quality and features.
   

3. Price products according to model - One product should be priced lower than the target item and offer limited features whereas the second product should be priced higher than the target and offer more advanced features. The price of the target item is then kept between the two and offers good quality.
   

4. Ensure your pricing is intentional - The target item’s price should reflect its quality so that it seems reasonable to the buyer.
   

Things to consider when using Decoy Pricing:

• To determine if your own prices are high or low, you need to consider your competitors’ pricing strategy.
• You should be able to offer flexible prices
• Implement stock ordering software to find more affordable suppliers to increase the profit margin.