A business consultant is redesigning her pricing page. She currently offers two packages: a basic monthly check-in and a full strategy package. Most clients choose the basic one. Then she reads about a famous pricing trick: add a third option that nobody would rationally choose, priced almost the same as the premium package but offering noticeably less, and customers will suddenly see the premium package as a bargain.
It sounds clever, almost too clever. And it comes with a well-known story from a respected behavioural economist to back it up.
What the story usually leaves out is what happened when other researchers tried to reproduce the effect under more realistic conditions. The answer is more nuanced, and more useful, than the trick itself.
One Like insight: The most reliable way to make a premium option attractive is to make it genuinely worth the difference.
The famous example
The story comes from Dan Ariely’s bestselling book Predictably Irrational. He described a subscription offer from The Economist with three options: web-only access for $59, print-only for $125, and print plus web for the same $125. The print-only option was obviously worse than the bundle at the same price, so why include it?
Ariely tested the offer on 100 students at MIT. With all three options, he reported that 16% chose web-only and 84% chose print plus web, while nobody chose print-only. When he removed the print-only option, the choices flipped: 68% chose web-only and only 32% chose the bundle. The unwanted option, it seemed, made the bundle look like a bargain.
Psychologists call this the decoy effect, or the attraction effect. It was first documented in 1982 by Joel Huber, John Payne and Christopher Puto, and it became one of the most widely taught ideas in pricing. Countless pricing pages now include a middle option that seems designed mainly to make another look good.
What happened when researchers checked
In 2014, the Journal of Marketing Research published two papers that tested the decoy effect far more extensively. Shane Frederick, Leonard Lee and Ernest Baskin’s paper, “The Limits of Attraction”, and a companion study by Sybil Yang and Michael Lynn together reported many attempts to reproduce the effect with realistic products and choices. In most of them, the effect was weak or absent.
The original researchers responded in the same issue, agreeing that the effect is real but arguing that it appears only under fairly specific conditions. It is most likely when customers see the options as simple numbers they can compare directly, when the two main options feel roughly equally attractive, and when the decoy is clearly and easily seen to be worse. When products are described in richer, more realistic ways, as most real products are, the effect tends to fade.
The Economist example itself is also worth treating with care. It came from a small classroom exercise rather than real sales data, and it’s often repeated as if it showed how much extra money the magazine made, which it didn’t.
None of this means the way options are presented doesn’t matter. It does, as the research on how many options to offer shows. But a single “decoy” isn’t the reliable lever it’s often sold as.
[Infographic placement] The decoy, then and now. Left panel, The famous example: three subscription boxes ($59 web, $125 print, $125 print + web), with bars showing 16% and 84% choices, then 68% and 32% when the decoy is removed. Right panel, The 2014 checks: a large grid of small test icons, most marked “little or no effect”. Caption: Ariely (2008); Frederick, Lee and Baskin (2014); Yang and Lynn (2014).
Honest tiers work better than tricks
For a small business, the practical lesson is to design pricing tiers that each make genuine sense for a real type of customer, rather than inserting options purely to manipulate choices. Three good tiers, perhaps a starter option, a recommended option and a comprehensive one, each aimed at a recognisable customer situation, help people find what suits them. A clear “most popular” label and a side-by-side comparison of what each includes usually does more than any decoy.
There’s also a reputational risk in tricks. Customers are increasingly familiar with pricing tactics, and an option that obviously exists only to steer them can make the whole page feel manipulative. As we explored in The Second Mint, people respond warmly to gestures that feel genuine, and the opposite is also true.
A few questions can help:
- Does every option on our pricing page suit a real type of customer?
- Can customers easily compare what each option includes?
- Is our premium option genuinely worth the extra, and do we explain why?
- Would we be comfortable if customers knew exactly why each option was there?
Which brings us back to the consultant and her pricing page. Instead of adding a decoy, she could ask why most clients choose the basic package. Perhaps the full strategy package isn’t clearly explained, or perhaps there’s a real gap in between that a genuine mid-level option could fill. Either change is likely to do more for her business, and her reputation, than a third box designed to be ignored.
Sources
- Dan Ariely, Predictably Irrational (HarperCollins, 2008). Economist subscription example, as summarised on Wikipedia’s decoy effect page.
- Joel Huber, John W. Payne and Christopher Puto, “Adding Asymmetrically Dominated Alternatives”, Journal of Consumer Research 9(1), 1982.
- Shane Frederick, Leonard Lee and Ernest Baskin, “The Limits of Attraction”, Journal of Marketing Research 51(4), 2014; Sybil Yang and Michael Lynn, “More Evidence Challenging the Robustness and Usefulness of the Attraction Effect”, Journal of Marketing Research 51(4), 2014; Joel Huber, John W. Payne and Christopher Puto, “Let’s Be Honest About the Attraction Effect”, Journal of Marketing Research 51(4), 2014.
