Decoy Pricing for Increased Profits

The “asymmetric dominance effect”. That’s the fancy name for a pricing tactic called decoy pricing which can radically increase your profits per sale.

Imagine you have a product that sells for $17. You also have a premium version of the same product that sells for $47. You get the occasional sale for the premium version, but most people opt for the low cost version. How can you get more people to trade up?

With decoy pricing, you introduce a third version that is slightly better than the premium version in content, but radically more expensive in price – say $97 (or even more.)

You aren’t offering a good, better, best choice. You are offering a good, better, holy crap choice. The average prospect will look at your high-end offer and say that it isn’t worth the outrageous price. But the magical thing that happens is that significantly more people will then settle for the $47 product as the best value and purchase that. The decoy option draws more people to the $47 product which was your primary target in the first place.

It’s a bit of perceptual contrast. By introducing the outrageously priced option, you make the middle option seem like the best deal by comparison.

This strategy is easy to implement. Just make three separate offers in your sales copy and link to three separate versions of the product with different prices set.

If you’ve experimented with decoy pricing in your business, please leave a comment below and let us know what happened.

6 thoughts on “Decoy Pricing for Increased Profits”

  1. Another fun thing to do once you’ve established the new higher priced version is to remove the $17 version entirely. Now the $47 version is the cheap version that everyone wants and the $97 version is now what the $47 version was before. Then repeat the original “3rd expensive option” tactic . It’s a tactic beloved by cereal manufacturers.

  2. Andrew,

    I’ve just started both an eBay store and a Yahoo store selling the same products. I have 3 categories: a 1-pack (most expensive per unit), a 3-4 pack (lower price per unit), and a 6-pack (lowest price per unit, by far). I could add a 12 pack, but shouldn’t I list that one at a lower cost per unit that the 6 pack?

    I would think ‘shyster’ if I did the math myself and saw that a 12-pack (actually two 6-packs, as the biggest manufactured size is a 6-pack) was more expensive than just buying two 6 packs.

    The 1 packs are by far the best sellers, but my profit margin on those is about the same as on the 3-4 pack. Maybe my products aren’t suitable for this technique.

    Thanks for any suggestions!

  3. Andy,

    It makes perfect sense when you think about it, but it doesn’t necessarily occur to you to think about it.


  4. Haha. Now I know why I always buy the medium priced bottle of wine when I’m in the retaurant! Thanks for that. So simple, but I’d have never thought of it.

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