Decoy Pricing: 7 Examples of the Decoy Effect and How to Use It Honestly
Short answer
The decoy effect happens when adding a third, less attractive option makes one of the original options look clearly better. In pricing, a "decoy" plan or size is priced so that the option you want to sell looks like the best value next to it. It was first described by Joel Huber, John Payne and Christopher Puto in 1982 and is one of the most reliable effects in pricing.
Key takeaways
- ✓People rarely judge a price alone; they compare it with nearby options.
- ✓A decoy is close in price to the target option but clearly worse value.
- ✓The decoy should still be a real option that some people can buy.
- ✓Three-tier pricing is the most common place to use the decoy effect.
How does the decoy effect work?
When choices are hard to compare, people look for an easy reason to pick one. A decoy gives them that reason. If option B is better than the decoy in every way and costs only slightly more, B suddenly feels like a smart decision. Researchers call this asymmetric dominance.
7 examples of the decoy effect
- The Economist subscription. In Dan Ariely's famous example, print-only cost the same as print plus web. Almost nobody chose print-only, but it made the bundle look like a bargain.
- Cinema popcorn. A medium priced close to the large makes the large feel like obvious value.
- Coffee sizes. A large only slightly more expensive than a medium pushes many buyers up a size.
- Software plans. A middle plan with most features, priced close to a limited top plan, makes the middle plan the clear choice.
- Phone storage. A storage tier priced just below a much larger tier makes the larger one feel worth it.
- Restaurant menus. One very expensive dish makes the next most expensive dishes feel reasonable.
- Agency packages. A starter package that lacks one key service makes the growth package the sensible choice.
How do you design a decoy?
| Option | Role | Design rule |
|---|---|---|
| Basic | Entry point | Lower price, fewer features |
| Target | The option you want most people to choose | Best value for the price |
| Decoy | Makes the target look better | Close to the target in price, but clearly worse value |
The decoy works only when buyers can compare options quickly. Keep the differences simple and visible, and label the target honestly, for example "most popular" only if it truly is.
Is the decoy effect manipulative?
It can be if the decoy exists only to confuse. Used honestly, it simply helps buyers see which option gives them the best value. A good rule: every option on your price list should be one you would be happy for a customer to buy.
Related reading: price anchoring examples and 25 psychological pricing examples.
Frequently asked questions
What is an example of decoy pricing?+
The Economist's subscription page is the classic example: a print-only option priced the same as print plus web made the bundle look like excellent value.
Does the decoy effect always work?+
No. It works best when options are easy to compare. Later research found the effect is weaker when options are complex or presented in very different formats.
How many pricing options should I offer?+
Three is the most common choice: it allows a basic option, a target option and a premium or decoy option without overwhelming buyers.
Sources
- Huber, J., Payne, J. W., and Puto, C. (1982). Adding Asymmetrically Dominated Alternatives. Journal of Consumer Research, 9(1).
- Ariely, D. (2008). Predictably Irrational. HarperCollins.
Team Husbar
Husbar Editorial
Team Husbar is the strategy, psychology and research team at Husbar, a psychology-led growth agency headquartered in Dubai. Together we have worked with 100+ brands over 10+ years.
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