Decoy Pricing — The Subtle Psychology That Makes Customers Choose What You Want

Most consumers like to believe they make rational, independent purchase decisions. Yet studies repeatedly show that human choices are profoundly shaped by context — not just the products themselves, but the way they are presented. One of the most fascinating (and effective) tools in this arena is Decoy Pricing, also known as The Asymmetric Dominance Effect, first identified by behavioral economist Dan Ariely.

Decoy pricing is simple: You introduce a third option — not meant to be bought — but designed to nudge customers toward the more profitable choice. This “decoy” is strategically priced and structured to make another option look disproportionately attractive.

The Famous Economist "Subscription" Case Study
Decoy pricing became globally famous after Dan Ariely published his classic experiment involving The Economist magazine. The pricing options were:

• Web Only — $59

• Print Only — $125

• Print + Web — $125

Students overwhelmingly chose Print + Web, because it looked like a bargain compared to “Print Only” at the same price. When Ariely removed the “Print Only” decoy, preference shifted dramatically — most students chose the cheaper $59 option.

This experiment showed that the decoy created value contrast, pushing customers toward the higher-priced bundle.

Real-World Examples in Everyday Marketing

Apple - When Apple launched the iPhone XS series, the 64GB and 512GB models made the 256GB version appear like the optimal value — not too expensive, not too limited. This mid-tier model consistently became the bestseller.

Starbucks - A “venti” cup is priced so that a “grande” looks like the smart choice. The smallest size often exists as a decoy to push customers toward the medium or large.

Cinema Popcorn Pricing - A medium popcorn, overpriced relative to the large, pushes customers toward upgrading “for just a little more.” A 2015 University of Chicago study showed upsell conversions jumped from 10% to over 60% when a decoy medium was introduced.

How Decoy Pricing Works (The Behavioral Science)

• Asymmetric Dominance - The decoy is worse than the target option in all ways, but similar enough to make the target appear superior.

• Contrast Effect - Consumers judge value relatively, not absolutely.

• Choice Simplification - When faced with a confusing decision, the human brain chooses the option that feels "clearly better."

• Loss Aversion - People fear “missing out on value.” The decoy makes the better option feel like a gain.

Decoy Pricing in Digital Marketing

Decoy pricing is especially powerful in SaaS and platform pricing pages.

For example:

HubSpot Pricing Page

Three tiers:

• Starter — Limited

• Professional — Feature-rich

• Enterprise — Overkill (decoy for most)

Most buyers end up in the Professional tier, which is the real target.

A similar structure is used by:

• Mailchimp

• SEMrush

• Dropbox

• Adobe

In A/B tests from ConversionXL, adding a decoy plan increased mid-tier purchases by 14–30%.

When Decoy Pricing Backfires - Decoy pricing is powerful — but risky when misused.

• If customers feel tricked - A study in the Journal of Consumer Research found that perceived manipulation decreases trust by over 40%.

• If the decoy is too obvious - Consumers today are more pricing-aware. They often share screenshots on social media, which can damage brand reputation.

• If the audience is too price-sensitive - Commodity markets or budget-focused segments reject complicated pricing.

• If the decoy restricts choice too much - Excessive steering makes customers suspicious.

Best Practices for Ethical Decoy Pricing

• Use decoys sparingly

• Ensure the target product genuinely delivers value

• Keep price differences logical, not absurd

• Avoid using decoys in essential or sensitive products (e.g., healthcare)

• Test with A/B and measure customer satisfaction

A transparent value proposition ensures long-term trust.

With AI-driven personalization and dynamic pricing, decoy pricing is evolving. Companies can algorithmically test which decoy works best for each segment. For instance, platforms like Optimizely or Google Optimize allow real-time adjustment of pricing layouts.

However, regulators are increasingly monitoring manipulative pricing tactics — meaning ethical design will matter more than ever. Decoy pricing is one of the clearest examples of how human psychology influences economic behavior. When used responsibly, it can guide customers toward better-value choices and increase revenue without deception. When misused, it can erode trust and invite backlash.

Understanding how the decoy effect works gives marketers a subtle but powerful tool for influencing decision-making — one that balances both behavioral science and brand ethics.

• The Economist Decoy Effect breakdown - https://www.behavioraleconomics.com/resources/mini-encyclopedia-for-be/decoy-effect

• Dan Ariely – Decoy Effect explanation - https://danariely.com/the-decoy-effect

• Original Williams-Sonoma bread machine story - https://www.nytimes.com/1992/11/25/business/a-275-bread-maker-why-not-429.html

• HubSpot on psychological pricing - https://blog.hubspot.com/marketing/psychological-pricing

• Fast Company pricing psychology - https://www.fastcompany.com/1826172/the-psychology-behind-the-sweet-spot-of-pricing