What is a Decoy Pricing Strategy?

Price is an integral component of the marketing mix. Before selecting a pricing strategy, the management must consider factors such as consumer’s ability to pay, market conditions and manufacturing costs. Premium pricing, Penetration pricing, Economy pricing and Decoy pricing are some of the pricing strategies adopted by Indian Brands. With the right pricing strategy, the seller can help consumers to make an informed purchase decision.

Decoy Pricing Strategy

  • One of the pricing strategies is the decoy pricing strategy. In this strategy, the seller persuades the consumer to purchase the product he wants to sell the most. This strategy helps the sellers to increase the sales of a product. Some experts term this strategy as a ‘cunning strategy’. The decoy pricing strategy can change customer’s preference to a profitable or expensive one.
  • Decoy pricing strategy is a tactic used to boost the sales of a high profit earning item. The marketers create another version of the product so that the consumers can compare the products economically. The new version of the product is priced just below the highest priced product. This leads to ‘decoy effect’. Decoy effect leads customers to purchase the expensive product rather than their primary choice.
  • The decoy pricing strategy is implemented when the products are offered in three varieties. The business may want to offer three options to their customer base with honest intention. However, many brands offer such variety to take the advantage of the decoy effect. This strategy is mostly used in movie theaters, coffee shops and fast-food chains.

Example of Decoy Pricing

  • Whenever we visit a movie theatre, we are tempted to purchase the staple food item ‘popcorn’. Initially, the sellers sold a small size popcorn and large size. Both this would be priced around INR 200 and INR 600 respectively. Seeing this wide price range, the customers would majorly buy a small packet. This led to a decrease in sales of the large packet. To overcome the problem, the sellers tactfully introduced a medium-sized packet which was priced at 550. So now, the customers would purchase the larger size as it was just INR 50 more than the medium-sized packet. Here, the medium-sized pack priced at INR 550 is the decoy.
  • The decoy pricing is also used in many coffee shops worldwide. While placing an order the cashier asks us ‘Would you prefer a large cup of coffee by adding INR 100 to existing one?’ This question puts us in a dilemma that should we choose the better option by paying a few more bucks. The decoy pricing strategy is often called a ‘trick’ as it makes the customers think twice about their decisions. The decoy pricing strategy depends on two specific effects: the compromise effect and the attraction effect.

Compromise Effect

  • In the compromise effect, a consumer gives preference to a median or a middle product. We can say that the consumer prefers a middle ground (option) rather than the extreme choices of low priced and high-priced products. The consumers avoid buying the low-priced product as it is seen as low quality the product. On the other hand, the customer avoids purchasing the high-priced product as he thinks that the product comes with unnecessary features. So as ‘compromise’ he decides to select the middle option. The consumer comes to this decision as he thinks that the middle option product is of acceptable quality.
  • The ‘compromise effect’ of decoy pricing strategy can be explained with an example. An electronic brand sells two types of Television sets. Television Set A is priced at INR 15000/- including a margin of INR 3000/-. The other T.V set B is priced at INR 50,000 inclusive of a margin of INR 25,000/- The company launches another T.V Set C and decides the price as per Decoy pricing strategy. The set is priced at INR 75000/- including INR 40000/- margin. The seller is aware of the consumers’ decision. He knows that TV set C will bring fewer sales because of its high prices. However, by introducing the set C, the sales of Set B had increased. The sales skyrocketed as the set B created a compromise effect between set A and set D.

Attraction Effect

  • The attraction effect of decoy pricing can be explained with a simple example of a magazine named ‘ABC’. The magazine owners decide to use the decoy pricing strategy for hard copies of magazines and digital editions. The owners decide to launch a hard copy of the magazine priced at INR 1500 per year, the digital edition costs for INR 700 per year. In addition to this, there also a bundle option available which has both the editions. This bundle is offered at INR 1500. The price of the bundle is as same as a hard copy. We can say that decoy pricing method is implemented to boost the sales of the bundle. People would buy the bundle as they consider that the company is offering the digital edition ‘free of cost’.

The industry experts opine that the brands should avoid decoy effect as consumers make purchase decisions in absence of information about the product. Consumers might face dilemmas in buying products having similar nature. A brand should be consumer-centric and should help its consumers to make rational decisions rather than putting them in a dilemma!

Content Credits:
Sayali Patil

Editor Credits:
Nishikant Patil

Graphics Credit:
Akanksha Saxena

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