What is decoy pricing?

How decoy pricing works

People judge value by comparison more easily than in absolute terms. With two options, a buyer weighs a lower price against more features and may struggle to decide.

The decoy is a third option placed close to the target. It costs nearly as much but offers noticeably less, or costs the same and offers less. Few buyers pick it. Its purpose is to make the target the obvious choice next to it.

This is known as the decoy effect, or asymmetric dominance. It was popularized for a general audience by Dan Ariely's book Predictably Irrational (2008).

A hypothetical example

This is a hypothetical example. Acme Example Software sells a Basic plan at $500 per month and a Premium plan at $1,200 per month. It adds a Plus plan at $1,100 per month that has only a few more features than Basic. Next to Plus, Premium offers far more for $100 more, so Premium becomes easier to justify.

Common mistakes

• A decoy nobody could want. If the option is obviously fake, buyers notice and trust drops.
• A decoy that sells. If buyers do choose it, you must be willing to deliver it at that price.
• Steering toward the wrong tier. Point buyers to the option that fits them, or expect churn later.
• Hiding the comparison. The effect depends on options being seen side by side.

Use the tactic honestly: every option should be a real offer. You can model tiers in the pricing tier builder and present them with packages and the compare table. For a longer walkthrough, read how to use the decoy effect.