Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How Decoy Pricing Tripled Sales on a Single Menu
Transcript
- Lucas: I was reading about a restaurant that added one item to its menu and tripled sales of its most expensive steak. Not a new recipe, not a lower price — just one extra row on the menu board. Luna: A decoy. Classic. But tripled? That's a big swing. What was the setup? Lucas: So the original menu had a burger for $12 and a steak for $25. Most people picked the burger. Then the owner added a surf and turf option — lobster tail plus steak — for $33. Almost nobody bought it, but suddenly the $25 steak didn't seem expensive anymore. It went from 'most expensive on the menu' to 'looks reasonable compared to the $33 item.' Luna: Right, because now you have a reference point. The steak becomes the 'sensible middle' instead of the 'splurge.' That's textbook asymmetric dominance. Lucas: Exactly. And that's the kind of thing we talk about on this show — real tactics you can apply. If these marketing conversations have sparked something you've actually used in your own work, that's the whole point. We keep the show ad-free because we want the ideas to stand on their own, not get buried in sponsor breaks. Luna: Yeah, and listener support is what keeps that possible. If you find value here, you can chip in at buy me a coffee dot com slash fexingo. No pressure, just a way to keep the episodes coming. Lucas: Alright — back to the menu. The obvious question is: why didn't people just buy the $33 combo? It's more food for only eight dollars more. Luna: Because it's not a better deal in their mind. The steak is $25, the surf and turf is $33 — that's a 32 percent premium. But the steak compared to the burger is over 100 percent more. So the steak feels like a bigger leap from the burger than the surf and turf does from the steak. The decoy makes the middle option look like the smart choice. Lucas: Right — and the decoy doesn't have to sell. In fact, it works better when it doesn't. The sheer existence of a higher-priced option shifts the entire frame. Economists call it 'attraction effect.' The decoy attracts preference to the target. Luna: We've mentioned the famous popcorn study before — where a medium popcorn at $3 and a large at $7 made people buy medium, but adding a $6.50 medium made everyone buy large. Same principle here. Lucas: Same principle, but the restaurant example is especially clean because it happened in the wild. The owner didn't run a lab experiment. He just changed a menu board and watched his steak orders triple over the next month. Luna: So the decoy has to be priced close to the target, not close to the cheap option. If that surf and turf had been $28, it might have cannibalized the steak. At $33, it's clearly a premium — but it makes the steak look like the value pick. Lucas: That's the key insight. The decoy should be asymmetrically dominated — meaning it's worse than the target on some dimension, but not clearly better on any. In this case, the surf and turf costs more, so it's worse on price. But more food — that's a positive, right? So why doesn't that make the decoy attractive? Luna: Because the extra food isn't worth the extra money to most people. They don't want to spend $33 on a single meal. So the decoy dominates on quantity but is dominated on value. The steak, meanwhile, is the best compromise: less expensive than the decoy, but still a nice meal. Lucas: And that's the asymmetry. The decoy is worse on the dimension that matters most — price — and only better on a dimension that matters less. So it pushes people away from itself and toward the target. Luna: What about the burger? Did sales drop? Lucas: They did — the burger went from about 60 percent of orders to 30 percent. The steak went from 25 percent to 65 percent. The surf and turf stayed at 5 percent. So total revenue went up because the average order value jumped from around $15 to $23. Luna: So the decoy didn't just shift preference — it increased revenue by over 50 percent. That's not a small tweak. Lucas: And it's replicable. A SaaS company I know did something similar with three pricing tiers: Basic at $10, Pro at $25, and Enterprise at $50. The Enterprise tier had way more features than Pro, but the price jump was steep. Almost no one bought Enterprise, but Pro subscriptions went up 40 percent. Luna: So the decoy was Enterprise. Was it deliberately priced to not sell? Lucas: That's the thing — they didn't know if it would sell. They just knew they wanted more Pro subscribers. They added the Enterprise tier as an anchor, and it worked. The key was making sure the features on Enterprise were genuinely attractive, so the comparison felt real. If the decoy looks fake, people get suspicious. Luna: Right — you can't just throw a ridiculous price up there. It has to be a legitimate offer someone might buy, even if most won't. Lucas: Exactly. The decoy has to be credible. If you're selling a $50 vitamin bottle next to a $200 one, the $200 bottle should have a plausible justification — maybe it's a year supply or includes a rare ingredient. Otherwise, consumers smell a trick and distrust the whole lineup. Luna: Speaking of vitamins — the $200 vitamin bottle is a classic example. The company behind it, a supplement brand called 'NutriGold' or something similar, put a premium product next to their mid-tier to make the mid-tier look affordable. It worked so well they kept the decoy in the catalog even though it barely sold. Lucas: And that's the lesson: the decoy doesn't have to earn its shelf space directly. It earns it indirectly by lifting the sales of the target. As long as the margin on the target covers the cost of carrying the decoy, the decoy is a net positive. Luna: So how would someone listening test this in their own business? Walk us through the steps. Lucas: First, identify your target product — the one you want to sell more of. It's usually your mid-tier option or your highest-margin item. Then design a decoy that is clearly more expensive or worse on the key value metric. In a subscription, that might be a plan with fewer features at a similar price — a 'stripped-down' version that makes the standard plan look generous. Luna: Or in physical products, a larger size at a disproportionately high price. Like a 16-ounce bottle for $12 when the 8-ounce is $7. The 16-ounce is a worse value per ounce, so it pushes people to the 8-ounce. Lucas: Exactly. Step two: price the decoy close enough to the target that the difference feels small. A 20 to 30 percent premium is usually the sweet spot. Too close and the decoy starts competing; too far and it's irrelevant. Luna: And step three: test it. You don't need a full A/B test platform — just change one channel, like a single landing page or a printed menu, and track the shift in sales mix. Lucas: One caution: decoy pricing works best when the choice is relatively simple — three to five options. If you have a dozen products, the decoy effect gets diluted because people have more comparisons to make. Keep the set small. Luna: What about a case where decoy pricing backfired? I remember reading about a wine shop that added a $200 bottle next to a $50 bottle, expecting to sell more $50 wine. Instead, people bought the $200 bottle because it looked prestigious. Lucas: That's the risk when your brand signals luxury. If your customer is shopping for status, the decoy becomes the aspirational purchase. The decoy only works if the target is the 'smart' choice — not the 'cheap' choice. In a luxury context, expensive is the smart choice because it signals quality. So you have to understand your customer's motivation. Luna: So it's not a one-size-fits-all tactic. It depends on whether your buyer is value-conscious, status-conscious, or convenience-driven. Lucas: Right. And that's why the best pricing strategies start with empathy — understanding how your customer makes trade-offs. The decoy is just a tool. The real skill is knowing which tool fits which market. Luna: Alright — we've given the listeners a lot to think about. Let's end with a quick challenge: next time you're at a restaurant or shopping online, see if you can spot the decoy. Chances are, it's right there on the menu. Lucas: And if you spot one, let us know. You can find us on the Fexingo network. Until next time, keep pricing smart.