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Decoy Effect in pricing strategy

The power of Decoy Effect in pricing strategy

pricing strategy psychology of price

As a pricing professional, you aim to optimize your pricing strategy to increase profitability and gain competitive advantage. You strive to set prices that reflect the value that your product brings to the market while ensuring that customers are willing and able to pay those prices. However, pricing is not a one-size-fits-all approach, and consumers do not always make rational and logical purchase decisions. That is where the Decoy Effect or a Secret Agent, as I call it, comes into play.

The decoy option is strategically designed to make one of the other options more appealing by comparison. The decoy option is usually less attractive and priced higher than the other options, but it increases the attractiveness of the target option, which is the one that you want customers to choose. This makes the higher-priced option seem more reasonable and increases the chances of customers selecting it over the lower-priced option.

The Decoy Effect is not only limited to physical products but also applies to services, subscriptions, and digital products. For instance, consider a subscription service with two plans: Basic at 9,90 € and Premium at19,90 € per month. Introducing a decoy option, such as the Plus plan at 12.90 €, can stimulate customer decision-making. The Plus plan may not offer as many additional features as the Premium plan, but it increases its appeal by comparison and influences customers to choose it over the Basic plan.

However, it is crucial to design the decoy option strategically and carefully. If the decoy option is too similar to the target option, it may confuse customers and lead to decision fatigue. Also, if the decoy option is too expensive or does not provide enough value, it may backfire and discourage customer purchases.

Decoy Effect is a powerful tool in pricing strategy. By introducing a decoy option, you can direct customers towards the target option and increase the chances of selecting it over the lower-priced option.

In a world where customer preferences and behaviors are constantly evolving, understanding and utilizing the Decoy Effect can differentiate your business and contribute to long-term success.

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