Decoy Pricing – Most Clever Pricing Strategy.

During his early playing days in the NBA Michael Jordan was a game changer but not a team player. He wanted all the limelight. At times this created rift among the players, Creating window of opportunity for the opponents. Then Head coach Phil Jackson, with help from assistant coach Tex Winter came up with a unique idea (original idea was of Sam Barry) of “Triangle Attack” . This was a “Decoy Strategy” to create moves that could fox the opponents into making mistakes. Such forms of play made “Chicago Bulls” win 72 titles. 

Question is how can organizations use this Decoy Strategy and create a winning position for themselves. 

We see this on a daily basis but most of the times are not able to figure it out. The decoy effect: how you are influenced to choose without really knowing it.

Pricing is one of the most crucial strategies in the entire marketing mix. Smart pricing strategy can have a major impact on Organization’s overall profitability. A very smart and cunning pricing strategy that marketers use to get you to switch your choice from one option to a more expensive or profitable one .It’s called the decoy effect.

Example below will help you understand how companies use Decoy Pricing Strategy and we fall for it , if not every time but most of the times:

Imagine you want to buy a phone, one 64GB at Rs.1,09,900/– and another 512GB at Rs.1,41,900/– . The consumer will feel that on almost 23% extra price he is getting almost 90% extra space and may be some extra features. Decoy pricing strategy adds an interesting & very clever dimension to the choice. Marketers add a third dimension . 

Now imagine if another phone with 256 GB memory and priced at Rs.1,23,900/- is also offered (decoy price offer) . The equation from the customer’s perspective will be just 11% extra price but 75% extra space and extra features.  The objective of the company is to sell this model. The customer feels he got the best deal !!

Decoy pricing is best suited when consumers are faced with many alternatives, they often experience choice overload. In an attempt to reduce this anxiety, consumers tend to simplify the process by selecting only a couple of criteria (say price and quantity) to determine the best value for money. The Decoy Pricing “Nudges” the consumer into making a decision. This strategy is also suited when there is fierce competition and the company wants the consumer to select from a product or segment that’s less crowded. The 64 GB category is very competitive but there are less options at 256GB.