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Like Apple, test the pricing strategy of the decoy effect

Learn how Apple, Spotify, and Pathé are using the decoy pricing technique to maximize their sales and profits.

In the complex arena of e-commerce and web marketing, there is a subtle but incredibly effective strategy: the lure effect or the lure of price. This pricing technique is based on the deliberate addition of a significantly less attractive option among the alternatives offered, with the aim of making the other options more attractive by comparison. It is a game of mirrors where consumers' choices are distorted by the presence of a clearly less advantageous option.

In this article, we explain how it works and how to use it well through concrete examples.

Some brands, such as Apple, Spotify, Pathé... know how to use this effective technique in a subtle way to maximize their profits while respecting their consumers.

1/ Manipulate consumers by adding a decoy price option

The decoy effect cleverly exploits certain flaws in our cognitive psychology. When we are faced with several options, our brains naturally look for points of comparison to assess their respective value.

Adding a significantly more expensive option creates a benchmark that influences our perception of what is reasonable and affordable. It's as if this extravagant option acts as a yardstick, implicitly determining what is acceptable in terms of price for a given product.

This is because consumers tend to change their shopping preferences when they are offered a third option. This means that if the customer clearly prefers option A, which is cheaper than option C, he can change his mind if he is offered another option B in the meantime, between A and C in terms of price but significantly less advantageous than C. This effect has been studied in neuromarketing as one of the most effective cognitive biases to apply in e-commerce.

2/ Professor Dan Ariely's experience about the decoy price effect

In his book "Previsibly Irrational," behavioral economist and professor Dan Ariely demonstrates how a major magazine used this technique to increase its subscription sales.

Consumers were offered three types of magazine subscriptions:

  1. An exclusively online subscription for €59
  2. A paper subscription only for €125
  3. A subscription combining online access and paper format, also priced at €125

At first glance, Option 2 seems like an aberration. Why opt for a paper-only subscription at the same price as an offer that includes both paper and online access?

Faced with these 3 options, 16% of consumers chose option 1 at €59 and 84% chose option 3 at €125; Not surprisingly, none chose option 2.

However, the real revelation of this experiment appears when the decoy price is removed from the equation. When the latter option is removed, consumer preferences often change significantly. What was once considered a value proposition suddenly becomes less appealing, while initially overlooked options suddenly take on prominence.

Faced with only 2 options, 68% of consumers chose option 1 at €59 and 32% chose option 2 at €125.

It is therefore clear that the intermediate option was not superfluous; it made option 3 more attractive to consumers.

3/ Decoy Price examples from everyday life

An obvious example of the decoy effect is the packet of popcorn or candy at the movies.

When there are only two options, small or large package, the customer will conclude that the large package is more expensive and they don't want to eat as much popcorn. He will therefore buy according to his needs.

Small package → 3€ Large package → 7€

However, by offering a third prize, the decision changes. What for?

Small package → 3€ Medium package → 6,50€ Large package → 7€

The new price, the lure, will trick consumers into choosing the most expensive product, when they don't need it, because they feel like they 're getting a good deal and making a better purchase. This strategy is part of psychological pricing, because it is based on the interpretation of prices that buyers make, rather than on the real value of the products

4/ Which products does the Decoy Price Effect work with?

The decoy effect is effective with:

  • Very similar products but with slight differences (level of quality, manufacturing process, quantity, etc.)
  • Services, especially online (software subscriptions, online training, music streaming services, cloud space acquisition, online newspapers and magazines, etc.)

5/ What are the techniques to make the Decoy Price effect work?

  • Use an unattractive lure to convince buyers to choose the most attractive option for you.
  • Place the decoy next to the item you're looking to sell. This is simple in the case of e-commerce since all you have to do is display the different prices on the same landing page.
  • Offer three options, no more. Offering more options slows down the decision-making process too much.  
  • Before using the decoy effect, review your pricing strategy and identify the products suitable for this decoy effect technique .
  • Monitor competitors ' prices and see if they employ psychological pricing in order to anticipate their movements and optimize your profits. Price Observatory allows you to monitor your competitors' pricing strategies in real time.
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6/ The risk with the misuse of the Decoy Price pricing technique

The main risk with this pricing technique is that buyers become aware of the scheme. This can damage brand image and cause the consumer to abandon their purchase. This technique should therefore be used with caution and fairness while respecting the consumer. For example, by offering an intermediate option that is clearly less advantageous, but not completely absurd either

In conclusion

The decoy effect is much more than just a marketing trick. It is a powerful tool that shapes our perceptions and influences our purchasing behaviors in ways that are often unsuspected. Understanding how price lure influences our decisions can allow e-tailers  to design more effective pricing strategies and maximize sales, while respecting consumers and avoiding overly underhanded and manipulative marketing tactics.

For personalized advice on the pricing of your products, do not hesitate to contact our team of experts on our Price Observatory website. Contact us for a demo, a real-life test or information

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