Latest / Sales Leadership with Fexingo: Quota Carriers, Sales Managers, and Revenue Teams / How to Use the Decoy Effect in Enterprise Sales
Transcript
- Lucas: A few years ago, Dan Ariely ran an experiment with a subscription offer from The Economist. The options were: web-only for $59, print-only for $125, or print plus web for $125. Luna: Right — the print-only option is obviously pointless. Nobody would pick it. Lucas: Exactly. But when that pointless option was removed, the most popular choice shifted. People who had seen the decoy — the print-only at $125 — overwhelmingly chose the print plus web bundle at the same price. Without the decoy, most went for the cheap web-only. Luna: That's the decoy effect in a nutshell. And it works in sales all the time, not just consumer subscriptions. Lucas: It does. But before we dig in — if these conversations have moved your work forward in some small way, we want to keep them free of ads and sponsors. That's a deliberate choice. No pre-rolls, no mid-rolls, nobody selling you a CRM. If you'd like to support that, the link is buy me a coffee dot com slash fexingo. No pressure, just an option. Luna: Yeah. It keeps the show clean. And you can find the link in the show notes. Lucas: So let's talk about how the decoy effect actually shows up in B2B sales — because it's not always a third pricing tier. Luna: What do you mean? I thought the decoy always had to be a third option? Lucas: In classic consumer experiments, yes. But in enterprise sales, the decoy is often a scope variation or a payment term that makes the target option look better by comparison. Luna: Can you give a concrete example? Lucas: Sure. Say you're selling a SaaS platform at $50,000 per year. You could offer a stripped-down version with fewer features at $40,000 — but that's not a decoy, that's just a cheaper tier. The decoy would be something like: the full platform at $50,000, or a version with less support and no onboarding at $48,000. That $48,000 option is unattractive compared to the full version for just $2,000 more. Luna: So the decoy makes the target look like a no-brainer. But doesn't the buyer see through that? Lucas: Sometimes. Especially if the procurement team is sophisticated and they run a competitive bid. But the decoy effect works below conscious awareness — it's a relative comparison, not a logical one. Luna: Right, Ariely's subjects didn't think they were being manipulated. They just felt the bundle was a better deal. Lucas: Exactly. And in B2B, the decoy doesn't have to be a separate SKU. It can be a pricing structure. For example, you might quote a per-user price of $100 per user per month, but then offer a flat annual fee that works out to $85 per user. The flat fee is the target, the per-user pricing is the decoy. Luna: So the decoy isn't always a bad option — it's just the option you don't want them to pick. Lucas: That's the key insight. The decoy exists to shift preference, not to be chosen. In enterprise sales, I've seen reps accidentally create a decoy by quoting a very high price first, then offering a 'better' deal. But that's anchoring, not decoy. Luna: Where do you see decoys fail most often? Lucas: When the decoy is too obviously bad. If the decoy is clearly inferior, the buyer may get suspicious. For example, if you offer a version with no support and a 50% price cut, it looks like a trap. The decoy needs to be plausible — just slightly worse on one dimension. Luna: What about the opposite — a decoy that's too similar? Like a $48,000 and $50,000 option with almost no difference. Lucas: That can work, but it risks confusing the buyer. The classic decoy effect requires that the decoy be clearly dominated on one attribute — like the $125 print-only being dominated by the $125 print plus web. In enterprise, the decoy might have a longer implementation time or less favorable terms. Luna: I've heard of companies using a 'good, better, best' structure where the middle option is actually the decoy. Is that common? Lucas: It can be. But in my experience, the middle option often becomes the target because of the compromise effect — people avoid extremes. If you want the highest-priced option to be the target, you need the decoy to be even more expensive but worse in some way. Luna: Give me an example of that in a real sales scenario. Lucas: Let's say you sell enterprise software. You have three tiers: Basic at $10,000, Professional at $25,000, and Enterprise at $60,000. The Professional is the target. The Basic is the cheap option, but the decoy is actually the Enterprise — it makes Professional look reasonable in comparison. But that's not a pure decoy, it's more anchoring. Luna: So the decoy effect is really about introducing a dominated option that makes the target asymmetrically attractive. Lucas: Yes. And the best decoys in B2B are often not price-based. They're based on scope, timeline, or risk. For example, you could offer a longer contract term at a lower monthly rate — but with a huge early termination fee. The decoy is the long contract with the penalty; the target is a shorter contract at a slightly higher rate. Luna: That's clever. The decoy makes the shorter contract feel like freedom, not just a higher price. Lucas: Exactly. And if the buyer chooses the decoy anyway, you still win — just with more commitment. Luna: What about ethical concerns? Are we manipulating buyers? Lucas: That's a fair question. I think the decoy effect is ethically neutral — it's a framing tool. If you're presenting real options that deliver genuine value, and the decoy is just a way to highlight the best fit, it's no different from a salesperson saying 'this package gives you more for only a little more.' The problem is when you create a decoy that's intentionally terrible to trick someone into spending more than they should. Luna: So transparency matters. If the buyer would actually be better off with the decoy in some scenarios, it's manipulative. Lucas: Right. I'd argue that a good decoy should still be a valid option for some subset of buyers. For instance, the $48,000 stripped-down version might be perfect for a small team that doesn't need onboarding. Then it's not a decoy — it's a real tier. Luna: So the decoy works best when it's a legitimate option that you simply expect most buyers to reject. Lucas: Yes. And the most powerful decoys are the ones that the buyer doesn't perceive as a decoy. They think they're making a rational comparison. Luna: Let's talk about how a rep could test this. How do you know if a decoy is working? Lucas: A/B test your proposals. Offer two versions: one with the decoy, one without. Track which option gets chosen. If the target option's selection rate goes up significantly with the decoy, you've got a winner. But you need enough data — at least a few dozen proposals. Luna: And if the decoy backfires? If people choose it more than expected? Lucas: Then either your value proposition is wrong, or the decoy is too attractive. Adjust the attributes until the decoy is clearly dominated on the key dimension. Luna: Can the decoy effect work in a negotiation, not just a proposal? Lucas: Absolutely. During a negotiation, you can introduce a 'straw man' term — something you know the buyer won't accept — so that your real ask seems more reasonable. For example, ask for a 24-month contract with a 90-day cancellation. When they balk, offer 12 months with a 60-day cancellation. The first option is the decoy. Luna: That's a classic concession tactic, but framing it as a decoy makes it more deliberate. Lucas: Exactly. And it works because the buyer feels they've won a concession, even if you always intended to offer the 12-month term. Luna: Final question: is the decoy effect more effective in certain industries? Lucas: It works best where options are complex and buyers are uncertain — like enterprise software, consulting, or custom manufacturing. In commoditized markets where price is the only factor, a decoy has less room to operate. Luna: So the less certain the buyer, the more influence a well-placed decoy has. Lucas: That's the bottom line. And that's exactly where sales leadership comes in — understanding the psychology so you can design proposals that help buyers see the value they might otherwise miss.