Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a Single Price Anchors Your Entire Product Line
Transcript
- Lucas: So there's this moment every SaaS founder hits — you're staring at your pricing page, three tiers, and you know most people are going to pick the middle one. But why? And more importantly, how do you nudge that choice without feeling manipulative? Luna: That's the decoy effect in action. And it's not just theory — there's a really clean example from Basecamp that I want to unpack. Lucas: Basecamp's old pricing page had three plans: a basic plan for twenty-nine dollars a month, a premium plan for one hundred forty-nine dollars a month, and then a third option — a 'Premium Pro' at two hundred ninety-nine dollars a month. The middle plan was their target. Luna: Right, so the two-ninety-nine plan wasn't really meant to sell. It was a decoy — making the one-forty-nine look like a bargain by comparison. Lucas: Exactly. And this works because of a cognitive shortcut called extremeness aversion. When you see a range, you tend to avoid the extremes — especially the most expensive option — and gravitate toward the middle. The decoy doesn't need to be credible; it just needs to exist. Luna: But didn't Basecamp actually have customers on that two-ninety-nine plan? I remember reading about it — some enterprise clients took it. Lucas: Yeah, a few did, but the point is the decoy tier had intentionally limited features — like twice the storage but no additional users, or something odd. It was positioned so that any rational comparison would push you to the one-forty-nine plan. The handful of people who bought it were probably just clicking the wrong button. Luna: So what's the lesson for someone building a pricing page today? Is it as simple as adding a third, clearly overpriced option? Lucas: It's close, but there's a nuance. The decoy has to be positioned in a specific way relative to your target. It needs to be worse in some dimension — like price — but also comparable in others. The classic example is popcorn: a small for three dollars, a large for seven, and a medium for six-fifty. The medium is the decoy — nobody buys it, but it makes the large look like a steal. Luna: That's from Dan Ariely's work, right? The Economist subscription experiment. Lucas: Exactly. The Economist offered a web-only subscription for fifty-nine dollars, a print-only for one hundred twenty-five, and a print plus web for one hundred twenty-five. The print-only was a decoy. It made the combo deal look like you were getting the web version for free. Without that decoy, people split between the cheap and the expensive. With it, eighty-four percent chose the combo. Luna: So the decoy doesn't just shift preferences — it actually creates a new preference. That's powerful. Lucas: Right. And it's not about tricking people. It's about making the value of your target offer more visible. The decoy highlights what you're actually getting for the money. Luna: I want to dig into a specific application. Say you're a B2B SaaS company with a flat monthly price. You want to introduce tiers. How do you design a decoy that doesn't feel fake? Lucas: Start with your target plan. Figure out what feature or usage metric is most valuable to your core customer. Then create a decoy that has twice the price but only, say, twenty percent more of that feature. Or a decoy that has the same price but half the features. The key is asymmetry — you want the target to dominate the decoy on some dimension. Luna: Can you give me a concrete example? Like, a project management tool — something with user limits and storage. Lucas: Sure. Say your target plan is for five users and ten gigabytes of storage at fifty dollars a month. Your decoy could be a plan for forty dollars but only two users and five gigabytes. Or a plan at seventy-five dollars with six users and twelve gigabytes. The first decoy makes the target look cheap per user. The second makes the target look like a better deal on a per-gigabyte basis. You test which one drives more conversions. Luna: And you'd split-test the decoy position? Like, swap the middle and the right column? Lucas: Absolutely. Positioning matters — the middle is usually the default sweet spot, but sometimes putting the decoy on the left changes the reference point. Some companies test having the decoy be the most expensive option, some test it as the middle option. It depends on your audience's price sensitivity. Luna: I've also seen decoys used in subscription plans where the cheapest option is deliberately stripped down to make the mid-tier look more appealing — like a basic plan with no integrations. Lucas: That's a variation. It's called the 'good-better-best' structure, and the 'good' tier can function as a decoy if it's deliberately unattractive. But the pure decoy effect works best when the decoy is clearly inferior on at least one dimension and similar on others. If the basic plan is just too cheap, it can anchor downward and hurt your revenue. Luna: So there's a risk of anchoring too low. You don't want the cheapest option to set a price anchor that makes your target seem expensive. Lucas: Exactly. That's why the decoy often sits above the target, not below. You want the anchor to be high, so your target looks reasonable by comparison. That's what the two-hundred-ninety-nine-dollar Basecamp plan did — it anchored the top of the range high, so the one-forty-nine felt like a sensible choice. Luna: And if you're a small company, you don't need a decoy that costs you money to serve. It can be a feature-limited version of your existing product — just a higher price tag. Lucas: Right. You can even create a virtual decoy that's never purchased. Some companies list a high-priced 'enterprise' tier with no pricing, just 'contact us.' That's a decoy — it sets a high anchor without you having to deliver anything. Luna: That's really clever. And it's low-risk — you're not building a product you don't want to sell. Lucas: Exactly. Now, I want to be honest about the limitations. The decoy effect is well-documented in controlled experiments, but in the wild, it can be diluted by other factors — brand trust, competitor pricing, or just how your customers actually compare plans. It's not a silver bullet. Luna: So the advice is: test it. Don't assume it works just because it worked for Basecamp or The Economist. Lucas: Yes. And the testing needs to be rigorous — statistically significant sample size, proper randomization, and a clear conversion metric. A lot of companies run a decoy test for a week, see a five percent lift, and declare victory. But you need to check if that lift is persistent or just noise. Luna: So let's say you test and it works. How do you evolve the pricing over time? Do you keep the same decoy? Lucas: You can, but as your customer base grows, their needs change. The decoy that works for early adopters might not work for mainstream users. You should revisit your pricing tiers every six to twelve months, especially if you add new features or face new competitors. The decoy is a tactic, not a strategy. Luna: Speaking of tactics, I want to mention a quick example from a friend's company. They sell a data analytics tool — three tiers: Basic at nineteen dollars, Pro at forty-nine dollars, and Enterprise at one hundred ninety-nine dollars. The Pro is their bread and butter. They added a 'Pro Plus' at seventy-nine dollars with exactly one extra feature — a feature nobody actually wanted. That made Pro look like the smart choice, and their Pro conversion rate jumped sixteen percent. Lucas: That's a great case study. The decoy doesn't have to be expensive; it just has to be positioned to make your target look better. The 'Pro Plus' was a decoy that cannibalized almost no sales because the feature was undesirable. Luna: Right. And they didn't change the product — just the pricing page. That's the beauty of psychological pricing. It can have a huge impact without any engineering work. Lucas: Absolutely. And that's the takeaway for today's listener: before you build a whole new feature to justify a higher price, consider whether a decoy tier could achieve the same lift. It's cheaper, faster, and often more effective. Luna: Alright, I think we've covered the decoy effect from theory to practice. Any final thoughts? Lucas: Just one: don't overdo it. If your pricing page looks like a puzzle, customers get frustrated and leave. The decoy should be subtle — it should feel natural, not like a trick. If people feel manipulated, you lose trust. Luna: And that's the line. Use the psychology, but don't abuse it. Lucas: Yeah. And if you're curious about your own pricing, a good starting point is to map out your current tiers and ask: is there a decoy hiding in plain sight? Or is there room to add one? The answer could be a quick win.