Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a 1000 Dollar Decoy Makes a 200 Dollar Subscription Seem Cheap
Transcript
- Lucas: So you're on a B2B software pricing page. Three columns. Left column: $150 a month. Middle column: $200 a month. Right column: $1,000 a month. Luna: Right, and almost nobody picks the $1,000 plan. It's there to make the $200 one look reasonable. Lucas: Exactly. That $1,000 price is a classic decoy. It's not really meant to sell. It's an anchor. And the midpoint — $200 — suddenly feels like a safe, sensible choice. The consumer thinks, 'Well, I'm not paying a thousand, so two hundred is fine.' Luna: I've seen this on so many SaaS sites. But does it actually work? Like, are there numbers behind it? Lucas: Plenty. One analytics platform I looked at — call it 'DashMetrics' — ran an A/B test. Their original two-tier pricing was $150 and $200. The middle tier converted at about 12 percent. Then they added a $1,000 enterprise plan. Conversion on the $200 plan jumped to 17 percent. That's roughly a 40 percent lift, just from adding a high-priced decoy. Luna: Wow. So the decoy doesn't just sit there — it actively reshapes what customers consider a fair price. Lucas: That's the whole mechanism. The $1,000 price serves as a reference point, or anchor, and the $200 plan becomes a relative bargain. It's the same psychology that makes a $5 movie popcorn seem okay — you've already anchored on the $10 ticket price. But here, it's even more deliberate because the decoy is designed to be unattractive. Luna: Right, but sometimes the decoy can be too extreme. I've seen plans priced at $10,000 a month for a basic CRM, and it just looks absurd. Then the whole pricing page feels like a joke. Lucas: Great point. The decoy has to be plausible enough that a small segment might actually buy it — or at least that it seems like a legitimate option for some. If it's laughable, customers might question the whole pricing strategy. The sweet spot is a decoy that's about three to five times the mid-tier price, with features that are clearly overkill for most users. Luna: So the decoy has to be expensive but not ridiculous. But what about the opposite direction? What if you put a cheap decoy instead? Lucas: That's a different trick. A low-priced 'basic' plan can anchor downward and make the mid-tier seem expensive by comparison. But that's less common in B2B because you usually want to move customers up, not down. The classic example is The Economist's subscription offer: web-only for $59, print-only for $125, print and web for $125. The print-only decoy makes the combo look like a steal. Luna: Right, Dan Ariely made that famous. That print-only option had almost no buyers, but it boosted sales of the combo by something like 40 percent. Lucas: Exactly. And that's the same structure we're talking about. The decoy doesn't have to be the most expensive — it just has to be dominated by the option you want to sell. In the B2B case, the $1,000 plan dominates the $200 plan on features? No, typically it's the opposite: the $1,000 plan has way more features, but it's so costly that customers self-select against it. Luna: So it's more about the price ratio than feature comparison. But let's get practical: if I'm a startup founder setting up my first pricing page, how do I pick the right decoy? Lucas: First, know your target customer. If you're selling to mid-market companies that typically spend $200-$500 a month on software, your decoy should be at least $600 or $700, maybe up to $1,000. It should include features that only enterprise clients would need, like dedicated support, custom integrations, or advanced analytics. That way, it's clear that the mid-tier is the best value for most buyers. Luna: And you test it. Like DashMetrics did. They probably tested different decoy prices, right? Lucas: They did. They tested $800, $1,000, and $1,500. The $1,000 decoy performed best — high enough to anchor, but low enough that some enterprise clients actually bought it, which added revenue without cannibalizing the mid-tier. The $1,500 decoy actually reduced conversions because customers felt the price range was too wide and seemed untrustworthy. So there's a Goldilocks zone. Luna: That's fascinating. So the decoy isn't just a psychological trick — it's also a real product tier for a small segment. It's a win-win. Lucas: Exactly. If nobody buys it, it's a pure anchor. If a few do, it's extra revenue. Either way, you're better off. The key is to avoid the 'too cheap' or 'too expensive' extremes. And you have to make sure the mid-tier is genuinely a good deal — if your decoy is just a ripoff and your mid-tier is also overpriced, customers will smell it. Luna: Which brings up the ethical question. Is this manipulative? I mean, you're essentially tricking people into spending more than they might have otherwise. Lucas: I think it's a grey area. On one hand, you're providing options and letting customers choose. On the other, you're exploiting a cognitive bias. But the same logic applies to any menu or shelf: the store decides the arrangement, and customers decide what to buy. As long as the pricing is transparent and the product delivers value, I'd call it smart marketing, not manipulation. Luna: I guess the line is when the decoy is a phantom — like a product that doesn't actually exist, or that you have no intention of selling. That feels deceptive. Lucas: Absolutely. If you list an enterprise plan but the 'buy' button leads to a 'contact sales' page that never responds, you're eroding trust. The decoy should be a real offer, even if you expect low volume. DashMetrics actually fulfills their $1,000 plan — they just sell very few of them. That's honest. Luna: So honesty matters. Now, let's talk about a specific example you mentioned earlier — the B2B analytics platform. Can you walk us through their pricing table? Lucas: Sure. Their original two-tier: 'Starter' at $150 with 5 users and basic reports, and 'Pro' at $200 with 20 users and advanced reports. Conversion on Pro was 12 percent. They added 'Enterprise' at $1,000 with unlimited users, API access, dedicated support, and custom dashboards. After the change, Pro conversion hit 17 percent, and Enterprise conversion was about 2 percent. Total revenue per visitor went up 22 percent. Luna: That's a clear win. But what about the customers who would have bought Starter? Did they upgrade to Pro? Or did they just stay on Starter? Lucas: Good question. Starter conversion actually dropped slightly — from 45 percent to 40 percent — because some customers who might have picked Starter now saw Pro as a better value. So the decoy shifted the whole distribution upward. The net effect was positive because Pro had higher margin. Luna: So the decoy doesn't just sell the mid-tier — it also cannibalizes the low tier. That's something businesses need to account for. Lucas: Exactly. You have to model the margin impact. If your low tier is already profitable and you lose 5 percent of those sales, but gain 5 percent on the high tier, it might still be worthwhile. But if your low tier has high volume and low margin, you might prefer to keep the two-tier structure. Luna: I've also seen decoys used in b2c, like with gym memberships. A gym might offer $20 per month for basic, $40 for premium with classes, and $100 for elite with personal training. The $100 plan makes the $40 one look cheap. Lucas: Right, same principle. And in that case, the decoy might also serve as a premium offering for a small segment of serious athletes. But the psychology is identical. Luna: You know, this conversation reminds me of something. If these marketing insights are useful to you — and I hope they are — we want to mention that this podcast is completely ad-free. We deliberately don't run ads on these episodes. If you'd like to support that choice, you can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, we keep it clean because we think the content should speak for itself. No sponsored segments, no mid-roll breaks. So if you've gotten value from today's episode or any of the previous 75, that link is a simple way to say thanks. Luna: And we really appreciate it. Now, back to decoys — one thing I want to touch on is how consumers can defend themselves against these tactics. Lucas: I think awareness is the biggest defense. If you recognize that a high-priced option might be a decoy, you can consciously ignore it and compare the other plans on their actual merits. Another tactic is to define your own budget first — decide what you're willing to spend before you look at the menu. That way, you're anchored to your own number, not the seller's. Luna: So set a maximum before you even open the pricing page. That's smart. And also look at feature lists closely. Sometimes the mid-tier has everything you need, and the decoy just adds things you don't. Lucas: Exactly. If you're a solo entrepreneur, you probably don't need unlimited users or dedicated support. So the decoy becomes irrelevant. But for a growing team, the mid-tier might actually be perfect. The key is to not let the anchor distort your perception of value. Luna: To wrap up, I think the decoy pricing strategy is a powerful tool — but it's not a silver bullet. It requires careful testing, honest execution, and a deep understanding of your customers. Lucas: Couldn't agree more. And if you're a founder listening, I'd suggest starting with a simple two-tier test, then add a decoy and measure conversion and revenue per visitor. That data will tell you more than any theory. Luna: Alright, that's it for episode 76. We'll be back next time with another angle on pricing psychology. Lucas: Thanks for listening.