Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a Single High Price Makes a Lower One Feel Like a Steal
Transcript
- Lucas: So there's this classic experiment from a few years back where the Economist offered three subscription options. Web-only for 59 dollars a year, print-only for 125, or print plus web for 125 as well. Now, the middle option was nearly identical to the priciest one, and almost nobody picked it. But its presence completely changed what people chose. Luna: Right, I remember that one. Without the decoy, most people went for the cheap web-only. With it, a huge chunk jumped to the bundle. Lucas: Exactly. And that's the decoy effect in action. Adding an option that's clearly worse than another one makes that other one look fantastic by comparison. And the numbers are wild. When just the web and print plus web options were offered, only about thirty-two percent chose the bundle. But once that useless print-only option showed up, eighty-four percent went for the bundle. Luna: That's a massive swing. And you see this everywhere now, from coffee shops to gyms to software. But I'm curious, Lucas — is there a line where using a decoy just becomes manipulative? Lucas: That's a great question, and we'll get to that. But before we dig in — I want to mention something. You know how we keep this podcast free and ad-free? That's a deliberate choice. If these pricing conversations have sparked something you've actually used in your own work, and you want to support that ad-free mission, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the lights on without selling your attention to sponsors. We really appreciate anyone who does. Lucas: Okay, so back to the decoy. The key is that the decoy is never meant to be chosen. It's there to make another option look like a bargain. And there's a name for the option it boosts: the target. Luna: And it works because of comparative thinking. We rarely evaluate a price in a vacuum. We look at what's around it. Lucas: Right. And the Economist example is the classic, but modern SaaS companies are masters of this. Take a typical three-tier pricing page. You've got a basic plan at ten bucks a month, a pro plan at twenty, and an enterprise plan at fifty. The enterprise one might be so far out of reach that it's not really a decoy — it's more of an anchor. But sometimes you'll see a middle tier that looks just slightly worse than the highest tier, and that's the decoy. Luna: So the pro plan becomes the target, and the enterprise tier is the decoy. But doesn't that risk annoying people who might want the enterprise features? Lucas: It can. And that's where the ethics come in. If the decoy is too obviously a decoy, people feel patronized. But if it's a real product with real value, even if most customers won't pick it, it's just good pricing structure. Luna: Let's talk about a concrete modern example. I saw a gym membership structure last week that really made me think. They had a monthly plan at forty-five dollars, a quarterly at one hundred twenty, and an annual at two hundred forty. The quarterly was almost the same per month but with no commitment benefit — clearly a decoy to make the annual look like a steal. Lucas: That's a perfect example. And you know what, that gym might have been using the decoy effect without even realizing it. But the same logic applies to coffee bags at the supermarket. You see a small bag for eight dollars, a medium for twelve, and a large for fifteen. The medium is the decoy — it makes the large seem like only three bucks more for double the coffee. Luna: And you know, I've been on the receiving end of that. I once walked into a coffee shop and was about to order a small, but the prices made the medium look so much better that I upsized without even thinking. Lucas: That's the decoy doing its job. And it's not just physical products. In the investment world, think about how a robo-advisor might structure its tiers. A basic plan at zero point two five percent, a premium plan at zero point four, and a top tier at zero point eight. The premium might get a few extra features, but the zero point eight plan might be so clearly not worth it that the premium looks like the sweet spot. Luna: But here's a question — does the decoy work when the price difference is tiny? Like, if the premium is only one percent more than basic, does it still push people up? Lucas: Research suggests it works best when the target is clearly superior in value but the price difference is small enough to feel like a no-brainer. If the jump is too big, people might just reject the whole set. It's a delicate balance. Luna: So how do you spot a decoy as a consumer? Is there a telltale sign? Lucas: First, if there's an option that almost nobody would pick, ask yourself why it's there. Second, look at the price per unit. If one option has the same per-unit cost but fewer features, that's a decoy. Third, if the middle option is priced suspiciously close to the high-end, and the low-end is far cheaper, you're probably looking at a decoy. Luna: So it's about doing the math. But also being aware that your brain is being nudged. Lucas: Yeah. And I want to bring up a cautionary tale. There was a software startup that used a decoy tier to push customers to their premium plan. It worked for a while, but then someone blogged about it, and the backlash was immediate. Customers felt duped, and the company had to restructure their pricing and apologize. Luna: That's the risk. If the decoy feels like a trick, you lose trust. And trust is hard to rebuild. Lucas: Exactly. So the ethical use of the decoy is about making the target genuinely better, not artificially so. If the premium plan actually has more value, then the decoy is just helping customers see that. If it's just a gimmick, it'll backfire. Luna: And it's not just about avoiding backlash. It's about respecting your customers. The best decoys are ones that help people make decisions they're happy with, not ones they regret. Lucas: Right. And that's where I think the decoy effect is most powerful when it's used as a tool for clarity, not manipulation. When you genuinely have a premium offering that's worth it, a decoy can guide people to it. But if you're just trying to squeeze more money out of people, they'll eventually catch on. Luna: So, if someone's listening and they want to try this in their own pricing, what's your advice? Lucas: Start with your target. What's the option you really want people to choose? Then design a decoy that makes that target look clearly superior. But make sure the target is actually the best value. And test it — don't just assume it'll work. Run an A-B test, measure conversion, and listen to customer feedback. Luna: And be transparent. If you're adding a decoy, make sure it's a real product that someone could genuinely want. That's the line between a nudge and a trick. Lucas: Yeah. Because at the end of the day, the decoy effect is a tool. And like any tool, it can build or it can break. Use it to help your customers make better decisions, and they'll reward you with loyalty. Use it to manipulate, and they'll walk away. Luna: I think that's a great note to end on. Next time you're looking at a pricing page, see if you can spot the decoy. And if you're designing one, make sure it's honest. Lucas: And if you want to support the ad-free mission of this show, you know where to find it — buy me a coffee dot com slash fexingo. We'll be back next time with more pricing stories.