Can the Decoy Effect Make a Premium Product Easier to Sell?

Cinema managers often sell popcorn in small and large buckets. The small bucket costs ₹200, while the large one costs ₹400, so many visitors choose the smaller option to save money. When the theater adds a medium bucket priced at ₹350, however, more customers may start choosing the large bucket instead.

This pricing strategy demonstrates the Decoy Effect. The medium option is introduced mainly to make the most expensive choice seem more attractive. Behavioral economist Dan Ariely studied this pattern at the Massachusetts Institute of Technology and found that people often judge value by comparing nearby options rather than calculating each product’s value independently. In this example, the large bucket appears to offer much more popcorn for only ₹50 more than the medium one, encouraging customers to spend extra.

How Decoy Effect Drives Subscriptions

Dan Ariely demonstrated this pricing strategy through a magazine subscription experiment. Business students were first offered two choices: digital access for $59 or the print edition for $125. Most students, about 68%, chose the less expensive digital option.

Ariely then introduced a third option: a combined digital and print subscription, also priced at $125. The print-only option became less attractive because students could receive both versions for the same price. After this change, 84% chose the combined package.

This Decoy Effect increased the publisher’s total revenue by 30%. The less appealing middle option made the premium package seem like a much better deal, encouraging customers to choose the more expensive subscription.

Local coffee shops often use this pricing strategy to encourage customers to order larger drinks. A small cup may cost ₹100, while a large cup costs ₹200. Many customers hesitate to pay twice as much for the larger size.

To make the upgrade seem more appealing, shop owners add a medium cup priced at ₹180. When customers compare the options, the large cup appears to offer much better value for just ₹20 more. This Decoy Effect makes the small cup less attractive and encourages customers to choose the premium size. The medium option is included mainly to guide shoppers toward spending more.

Mobile phone manufacturers often use tiered pricing to influence customers’ choices. For example, a 64 GB phone may cost ₹50,000, while a 256 GB model costs ₹60,000. Many shoppers may initially choose the cheaper option.

The manufacturer can then add a 128 GB model priced at ₹58,000. This middle option creates a strong Decoy Effect by making the 256 GB phone appear to offer much better value. Customers may feel that paying only ₹2,000 more provides twice the storage compared with the middle model. The mid-range phone is often designed to seem less attractive, guiding buyers toward the premium version and encouraging them to spend more for maximum storage.

Business owners need to follow an important rule when adding a third option: the Decoy Effect works only when the middle choice appears reasonably priced. For example, if a basic car costs ₹5 lakh, a mid-range model costs ₹20 lakh, and a luxury model costs ₹21 lakh, shoppers may notice the unusual pricing and lose trust in the seller.

The decoy should share important features with the premium option and be priced just below it. When the premium version costs only slightly more, customers may see it as the better deal and upgrade easily. This allows sellers to encourage premium purchases without making the pricing strategy seem unnatural.

Loved this article? Read more insightful articles on Brand Custodian.

–Written by Rajnish Kumar, a copywriter and strategist with a background in fast-paced journalism, who explores the gap between what brands promise and how consumers actually behave.