Don’t Let Your Pricing Scare Customers: Use This Clever Decoy Marketing Psychology Trick to Boost Sales

Key Takeaways

• Decoy marketing involves positioning an unattractive pricing option next to your premium offering so that the premium seems like an amazing value by comparison
• This guides more customers to purchase the premium offering
• When used ethically, it's a powerful way to increase conversion of high-margin products

You’ve worked hard to create an amazing product or service that delivers incredible value. Your customers love it! There’s just one problem: your ideal customers balk at the price tag.

It's frustrating. You know the value is there, but potential buyers don't seem to see it. They look at your competitor's cheaper offering and flock there instead. You watch helplessly as sales languish.

Sound familiar?

If so, listen up. There’s a powerful psychological pricing tactic called “decoy marketing” that can flip the script and have customers choose YOU over competitors—even at a higher price.

Intrigued? Read on to discover what decoy marketing is, how it works, and why it’s a must-have strategy for any small business owner looking to boost sales.

What is Decoy Marketing?

Decoy marketing involves strategically positioning a higher-priced premium offering alongside one or more “decoy” options to nudge customers toward the more expensive choice.

It capitalizes on cognitive biases that cause us to value things higher when a direct comparison is made side-by-side. The decoy acts as the “ugly step-sister” to make your true product shine.

For example, a software company might offer:

Option A: Basic plan for $20/month

Option B: Pro plan for $60/month

Option C: Enterprise plan for $100/month

Most customers would likely choose the basic $20 plan in this scenario. But add this decoy option:

Option D: Premium plan for $75/month

Now the $60 middle option looks much more appealing and becomes the obvious “value” choice. Even though the actual software offering hasn’t changed, more customers are nudged toward the higher-priced Pro plan simply by adding the decoy.

Make sense? Decoy options are designed to be unattractive, so your real offerings stand out by comparison. Let’s look at some examples across industries.

Real-World Examples of Decoy Marketing

Software Companies

As mentioned above, software companies like Dropbox deploy decoy pricing masterfully. They offer a free plan, a pro plan for $12/month, and a business plan for $20/month.

Most individual users compare the free vs. paid options and opt for Pro since it’s “only” $12/mo. The business plan acts as a decoy for teams that need advanced functionality.

Retail Stores

Retailers use decoy marketing to upsell customers to more profitable purchases. For example, a clothing shop might have:

• T-shirt Option 1: $20
• T-shirt Option 2: $30
• T-shirt Option 3: $50

The $50 t-shirt serves as the decoy to make the $30 shirt seem reasonable. Without it, customers would likely gravitate toward the $20 option.

Food Businesses

Restaurants leverage decoys when offering drink sizes like small, medium, and large. The medium is priced to be only slightly cheaper than the large, prompting customers to "upgrade" since it's "only" a little more.

Bakeries display a basic birthday cake next to a more ornate (and expensive) decoy design. This makes the "middle" option look like the better value choice.

And the list goes on. Savvy businesses across industries tactically use decoys to influence customers. Now let’s unpack why this tactic works so well psychologically.

Further Example of the Application of Decoy Marketing

How I would apply decoy marketing to sell the premium offering from my bag business.

Premium Bag Offering First: I would determine the premium bag offering that I want customers to buy. For example, a high-quality leather tote bag priced at $300 with lots of features and compartments. This would have the highest margins.

Entry-Level Decoy: I would then create a very basic canvas tote without features as the decoy, priced at say $100. This serves as the lower-value option.

Mid-Tier Decoy: Additionally, I could design a leather bag lacking certain compartments and make it my mid-tier decoy. I'd price it around $250, so it's unattractive relative to the $300 premium leather bag.

Bundling Decoys: I could also bundle the basic canvas bag with a premium leather bag at a slight discount. But price it, so buying the premium leather bag alone is a better deal.

The unattractive canvas and mid-tier decoys should guide more customers to purchase my high-margin $300 premium leather tote, given the psychology behind decoy marketing.

I'd track performance over time and keep optimizing my decoy offerings accordingly.

The Psychology Behind Decoy Pricing

Decoy marketing taps into cognitive biases hardwired into the human brain that affect how we perceive value. There are two main biases at play:

1. Extreme Aversion Bias

We have an innate preference for moderation over extremes. Give us two options, and we’ll pick the middle ground. Decoys play into this tendency.

For example, in the software example above, most people will rule out the cheap basic plan as inadequate and the expensive enterprise plan as overkill. The middle Pro plan hits the cognitive “sweet spot.”

2. Value-Contrast Effect

We make relative rather than absolute judgments. When products are evaluated side-by-side, differences become exaggerated.

Seeing an expensive decoy makes a moderately priced option seem like a steal by comparison. This perceived increase in value drives purchase behavior.

These innate biases are so deeply ingrained that decoy marketing is effective even when we feel we're making rational choices!

Now let’s look at how small businesses can adopt decoy pricing to boost sales.

How To Use Decoy Marketing to Increase Revenue

Follow these steps to start employing decoy pricing for your business:

Step 1: Pick Your Premium Offering

First, select the product or service you want to up-sell to customers. This will be your flagship premium offering. Make sure it's priced in such a way as to create strong profit margins.

Step 2: Price Your Base Option

Next, determine your entry-level or basic offering. This should be stripped of any bells and whistles but still deliver core value. Use competitive research to price it appropriately.

Step 3: Create Your Decoy

Now design a decoy option by taking your premium offering and adjusting it slightly—either cut secondary features or raise the price. Make sure the decoy is unattractive relative to your true premium offering.

Step 4: Test Different Decoy Variations

Run A/B tests with different decoy combinations and pricing to see what configuration optimizes uptake of your premium offering. The decoy price should still direct preference toward the premium but not exceed it.

Step 5: Track Performance

Analyze sales data, customer feedback, reviews, and margins to monitor the impact of your decoy strategy over time. weak based on results.

Following this process allows you to deploy decoy pricing in a strategic, optimized way for your specific business. But to sustain success, decoys must adhere to a few key principles.

3 Key Principles for Effective Decoy Pricing

There’s an art to executing decoy pricing, right? Keep these critical principles in mind:

First Principle: Maintain Value Parity

The premium product should objectively deliver meaningfully more value than the decoy. Customers won’t buy based on perception alone. Make sure the added value is present.

Second Principle: Use Small Price Differences

Price the decoy just below your premium offering. Big price gaps undermine the effect. Optimal decoy pricing shows marginal savings over the premium to guide preference.

Third Principle: Monitor Fairness Perception

Test that customers ultimately feel their purchase was priced fairly. Decoys sway behavior, but going too far erodes goodwill long-term. Find the ethical sweet spot.

Get these fundamentals right, and you can be sure decoy marketing will provide a powerful lever to profitably boost conversions for your premium products and services.

5 Huge Benefits of Using Decoy Marketing

Convinced that decoy pricing belongs in your small business toolbox? Here are five powerful advantages it brings:

• Increased Customer Spending: Decoys naturally guide buyers toward more expensive purchases, driving higher revenues.
• Maximized Profit Margins: Customers are willingly upsold to premium offerings with the highest margins built in.
• Value Perception Lift: Side-by-side comparisons make featured products seem like an amazing deal.
• Behavioral Nudge Factor: Decoys work on an innate subconscious level you can ethically leverage.
• Minimal Added Effort: Simply adding a decoy option takes very little work but pays big dividends.

As long as you use decoys honestly and transparently, it’s a win-win for boosting business without tricks or deception.

Now let’s tackle some common questions.

FAQs About Using Decoy Marketing

Isn't decoy marketing unethical?

Decoy pricing is ethical when used judiciously. The decoy should provide a real alternative, just not an optimal one. And value parity with premium options must exist. Manipulative illusions cross an ethical line.

How do I choose the right decoy price?

Test different price points below your premium offering to find the sweet spot. Generally, 5–15% less than the premium converts well. Big discounts defeat the effect.

Can I offer more than one decoy?

One well-designed decoy simplifies options and improves conversion odds. Too many choices overwhelm customers. Limit to 3 total options (basic, premium, and decoy) as a best practice.

How do I make the decoy less attractive?

Either cut secondary features or specs or inflate the price compared to your true premium offering. Finding the right balance to make it a no-brainer comparison takes testing.

Final Thoughts on Decoy Marketing

Don’t Leave This Powerful Strategy on the Table

If you want to maximize sales, margins, and customer lifetime value, decoy marketing deserves a place in your pricing toolbox.

When used ethically, it capitalizes on the natural human decision-making process to deliver a win for both your business and your customers.

So next time you find yourself wishing that high-value customers would see the light when it comes to your pricing, reach for a decoy! Position an option that makes your true premium offering shine by comparison.

Then watch as more customers voluntarily and happily opt for your most profitable selection—no arm-twisting required!

If this article was helpful to you, also read The Secret Sauce: How Word-of-Mouth Can Skyrocket Your Small Business.