Have you ever wondered why the price of a large drink or popcorn at the movie theater is not that much more than the price of a medium?

It’s because the medium is a decoy.

Its purpose is to change your perception of the value of that large soda or popcorn and drive you to buy it rather than the more economically priced small.

This is a perfect example of a pricing tactic called The Decoy Effect.

One of the most famous examples of the decoy effect is employed by The Economist magazine.

Way back when, they offered two options for subscription: one year of digital access for $59 or one year of digital access plus copies of the print magazine for $125.

To their consternation, subscribers overwhelmingly selected the cheaper option.

Then they got the bright idea of adding a third option and everything changed.

The option they added was for an annual print-only subscription priced at $125. Yes, the same price as their print-plus-digital offer.

And, you know what? New subscriptions for their print plus digital option skyrocketed.

Interestingly, the magazine still uses a version of this today because it’s that effective.

So, what’s happening here?

The short answer is a lot of behavioral psychological.

Maybe, when reviewing The Economist's subscription options you experience some of them yourself.

In all likelihood, your brain is telling you that the print-plus-digital is the best deal. Even though the digital-only option might make more logical sense for your needs and your budget, the allure of that third option is tempting.

You may recall from my review of Sandwich Pricing that we have an innate desire to see ourselves as neither cheap nor a chump, which makes middle-priced offers attractive to us. (See Is the Price Right?)

With the Decoy Effect something similar yet different is going on. Namely, that we don’t want to lose money or miss out on what we think is the best value.

Even if it's more than we actually need (or planned on spending).

It’s important to note here that a decoy offer isn’t necessarily cheaper or the same price as that of the offer the seller is prompting you to purchase.

Sometimes, a seller will introduce a high-priced product or service as a decoy to drive the majority of customers to their lower-priced options.

I recently spoke with an entrepreneur who creates and produces sales webinars for tech companies.

He told me he introduced a soup-to-nuts done-for-you package that is “outrageously expensive.” (His words, not mine.)

He did this to discourage the majority of his prospects from selecting this option because it’s a ton of work and a huge investment of his time.

What's really interesting is that he found more of his prospects opted into his lower-priced offers more quickly than when there was no high-priced third option.

And that's because of another interesting aspect of our human decision-making wiring.

In general, people struggle to decide between two options. By adding a third option you give greater context for buyers to feel confident about making a choice whether its based on value, preference, or some other criteria.

Are you struggling with pricing or getting your prospects to opt in to your offers?

Now's the time to take advantage of my 3-Pack Laser Coaching sale and get the support you need.

Sorry to say that once Small Business Month ends, the sale ends, too, so don't wait or you may miss the savings.

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Until next week,

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PS - If you missed it, last week I focused on accounting for Cash In/Cash Out.

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