Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How Decoy Pricing Made a Popcorn Sale Go Viral
Transcript
- Lucas: So a few years back, a convenience store in Cadillac, Michigan — about ninety miles north of Grand Rapids — started selling popcorn tins. Small, medium, large. Nothing fancy. Luna: Caramel, cheese, butter? Lucas: Exactly. But the pricing was weird. The small tin was three bucks. The medium was six fifty. And the large was also six fifty. Same price for medium and large. And the store sold more large tins than anything else. Luna: Wait — so the medium and large were identical in price? That feels like a mistake. Lucas: That's what most people assume. But it was deliberate. The owner had read about decoy pricing in a marketing blog, and he wanted to test it. The medium tin was the decoy. It made the large look like a no-brainer. Why pay six fifty for the medium when you can get the large for the same price? Luna: Right. And the small anchors the low end, so the medium seems reasonable, but the large seems like a steal. That's textbook asymmetric dominance. Lucas: That's the term. The decoy — the medium — is dominated by the large. It's worse on size and equal on price. So the large dominates it. And that makes the large more attractive than it would be if you just saw the small and the large side by side. Luna: What happened when they removed the medium? I assume sales of the large dropped? Lucas: They dropped by about thirty percent. Some people switched to the small, some just didn't buy. The decoy had been doing real work. Without it, the choice became harder — do I want to spend three dollars or six fifty? And a lot of people opted out. Luna: That's the thing about decoys. They don't just steer choice — they make the choice feel easy. You don't have to weigh value; it's obvious. Lucas: The popcorn example went viral on Twitter a couple years ago. A marketing professor from the University of Michigan tweeted a photo of the price board and it got over a hundred thousand likes. The store got a ton of press. But what's interesting is that the owner wasn't trying to go viral — he just wanted to move more large tins. Luna: And it worked. But is there a risk that customers feel tricked if they figure it out? Lucas: It's a real ethical line. Some people on Twitter called it manipulative. The owner defended it by saying, 'Look, you're getting more popcorn for the same money. No one is losing.' And that's true. But the intent was to exploit a cognitive shortcut. Luna: I think there's a difference between nudging and deceiving. If the decoy is a real product at a real price — like the medium tin existed, you could buy it — then it's a pricing structure, not a con. Lucas: That's a fair distinction. The decoy has to be a genuine option. If it's a phantom product that nobody would ever buy, you're crossing into deception. The FTC has actually looked at cases where decoys were priced so high they were clearly never meant to sell. Luna: Right. Like when a software company lists a premium tier at ten thousand dollars a month but the next tier is two thousand — the ten thousand dollar tier is almost certainly a decoy. But it's a real tier. Someone could buy it. Lucas: And that brings us to the SaaS example I wanted to share. A B2B analytics company I've followed — let's call them DataPulse — used a decoy to boost their mid-tier subscription by thirty-four percent in a single quarter. Luna: What was their pricing before? Lucas: They had a basic tier at twenty-nine dollars a month, a professional tier at seventy-nine, and an enterprise tier at one forty-nine. The professional was their target. But most customers were picking basic. So they introduced a new tier: professional plus at one hundred and nine dollars. It had slightly more features than professional but was clearly worse value than enterprise. Luna: So professional plus was the decoy. It made the regular professional look like a sweet spot. Lucas: Exactly. Professional was seventy-nine, professional plus was one hundred and nine for just a couple extra features, and enterprise was one forty-nine with everything. Suddenly, professional seemed like the smart choice. And conversions shifted. Their average revenue per user went up by about eighteen percent. Luna: That's a clean example. And it's honest — the professional plus tier really existed. Some people bought it. But its main job was to be the decoy. Lucas: Right. And that's the key to doing this ethically. The decoy has to be a product someone could genuinely buy. If you have a service that costs three hundred dollars a year, and you create a 'premium' tier at three thousand that's just the same thing with a gold sticker — that's not a decoy, that's a trap. Luna: I want to come back to that ethical line in a second. But first — Lucas, you mentioned the compromise effect earlier. Can you unpack that a bit? Because I think it's the psychological engine behind why decoys work. Lucas: Sure. The compromise effect says that when people are faced with three options, they tend to pick the middle one. It feels safest — not too cheap, not too expensive. The decoy works by shifting what 'the middle' looks like. If you add a high-priced decoy, the previously expensive option becomes the middle. If you add a low-priced decoy, the cheap option becomes the middle. Luna: So in the popcorn case, the medium decoy made the large look like the middle choice? That's interesting. Usually the middle is the compromise, but here the large became the compromise because it was priced the same as the medium. Lucas: Exactly. The compromise is about value, not just price. The large offered the best value, so it became the rational compromise. People don't want to feel like they're being cheap or extravagant. They want to feel smart. The decoy creates a path to that feeling. Luna: I remember a study from Dan Ariely — he offered students subscriptions to The Economist. One group saw three options: web-only for fifty-nine dollars, print-only for one twenty-five, and print plus web for one twenty-five. Most picked print plus web. Another group saw just the two: web-only and print plus web. Then most picked web-only. The print-only was a decoy. Lucas: That's the classic. The decoy didn't even have to be a good deal — it just had to exist. And it completely flipped the preference. It's one of the most replicated results in behavioral economics. Luna: It's also a reminder that context is everything. There's no such thing as an absolute price preference. Every choice is relative. Lucas: Which is why you have to be careful. If you build a decoy that relies on a flawed comparison — say, a product that is obviously worse on every dimension — customers might notice and feel patronized. The best decoys are close enough to be credible. Luna: And that gets back to ethics. If the decoy is credible, it's a pricing strategy. If it's a phantom, it's manipulation. Lucas: You know, speaking of things that are credible and useful — I want to take a quick beat here because something just crossed my mind. These conversations we have, they take a fair amount of research and prep. And the reason we can keep them ad-free is that some listeners chip in a couple of dollars a month. Luna: Yeah, it's a small thing that makes a big difference. If you've ever gotten a pricing idea from this show that actually worked, or even just found the psychology interesting, supporting the show at buy me a coffee dot com slash fexingo helps keep it going. Lucas: Exactly. It's not about a big commitment — a few bucks genuinely makes the difference between us having the time to dig into cases like this popcorn story or not. So if that's something you feel like doing, we appreciate it. Anyway, back to decoys. Luna: So we've talked about the popcorn decoy and the SaaS decoy. I want to look at one more example — but this time where the decoy failed. Because I think failures teach us more than successes. Lucas: I love that. What's the case? Luna: A meal-kit company — let's say FreshPrep — tried to introduce a decoy tier. They had a two-person plan at sixty dollars a week and a four-person plan at a hundred and ten. They wanted to push people to the four-person plan, so they added a 'family plus' plan at a hundred and thirty dollars that was basically the same as the four-person but with two extra desserts. Lucas: Classic decoy structure. What happened? Luna: It backfired. Customers saw the family plus plan and thought, 'That's only twenty dollars more than the four-person plan for just two desserts? That's a rip-off.' And the comparison made the four-person plan look less valuable too. Overall conversion dropped. Lucas: So the decoy was too weak. It didn't create a clear dominance relationship. The four-person plan was better value per person, but the decoy wasn't obviously worse — it was just different. And that confusion made people hesitate. Luna: Exactly. The decoy needs to be dominated on the key dimension — usually price or quantity. If it's ambiguous, the effect can reverse. Lucas: That's a great cautionary tale. Which leads me to a practical takeaway. If you're thinking about using a decoy, you need to test it. The popcorn store owner didn't know it would work — he tried it. And the FreshPrep team probably didn't test enough before rolling it out. Luna: What's the simplest test? A/B test with and without the decoy, track what happens to the target product's sales. Lucas: And don't just look at the target. Look at overall revenue, average order value, and cancellation rates. A decoy that pushes people to a higher tier but makes them feel bad about it might increase churn later. Luna: That's a good point. The popcorn store didn't have to worry about churn — it's a one-time purchase. But for subscriptions, the decoy choice has to be one people are happy with months later. Lucas: Exactly. So the ethical line isn't just about deception — it's about long-term satisfaction. If your decoy pushes someone into a plan they don't actually need, they'll cancel. And then the decoy cost you a customer. Luna: So the best decoy is one that actually helps customers find the best option for them — it just happens to also be the one you want them to pick. Lucas: That's the ideal alignment. And when it works, it feels like magic. But it's really just understanding how our brains compare things. Once you see it, you can't unsee it.