Decoy Effect Pricing Example

Sage Business Partner Wayne Schulz of Schulz Consulting posted this great example of using the decoy effect in pricing options from the New York Post on my Facebook page. This is similar to the example Dan Ariely used in his TEDtalk about the Economist. However, in that case, the publisher seemed to believe they had made a mistake and pulled the ad when Ariely questioned them on it.

In this case, I think the Post knows exactly what they are doing. In addition to the dominated option (4 weeks for $9.18), they have also included two anchor products -  $2 for a single issue and $5 for a back issue.

Adding the .18 to the dominated option also gives it an air of precision and simultaneously draws your attention to it. I originally thought this was a bad idea and I wrote Wayne telling him that. I have changed my mind, I think it is brilliant.

I also find it intriguing that they do not list the price per issue of each of the options. Most subscription pricing options provide this. I think not providing it is the smarter idea.

The lesson for professional firms is that you can use the dominated option to influence customers to a higher or lower level (see the decoy effect), but only if you provide options in your proposal. A range of hours from low to high for the same result is not options pricing. In fact, if anything, it is confusing to the customer.

Imagine if instead of a price on an item in a supermarket, they just gave us a range. A loaf of bread would be listed as between $2 – $4. Once you got home from the store (I originally was going to write ‘got to the cashier,’ but that is not accurate), they would send you a final bill indicating that you paid $3.75 for loaf. It sounds crazy, but this is exactly what professionals do when they provide a prospect with a range of hours proposal. It is, in effect, an infinite number of options. It is confusing to the customer.

Don’t do it.! Use options pricing instead.

2 thoughts on “Decoy Effect Pricing Example

  1. Regarding your bread example, Ed, the more accurate truth is that the store puts $2 – $4 on the bread but the customer gets an invoice for $7.15 and then sits on the invoice for 90+ days until the store calls up wondering where their money is. 😉

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