Last week my blender broke. Since protein smoothies have become a big thing in my house, it’s become an appliance that gets a bit of a workout, so we had to replace it. Stat.
As I stood at the register, I realised that I had just been ‘Goldilocks-ed’.
Yep, in under five minutes I had been convinced to buy the highest priced option. And it had been an absolute no-brainer. Because of the way the options on the shelf were presented, the blender I had chosen had appeared to me to be just right in value-for-money terms.
How did this happen?
It’s known as The Decoy Effect. A simple, yet extremely effective pricing strategy that helps nudge customers towards the product or service option you most want them to purchase.
When I’m coaching business owners on various pricing strategies (and believe me, there are many!), this one is close to the top of the list.
Breaking down The Decoy Effect
Choosing between all the options can be overwhelming for customers. Even when faced with just two possibilities, they’ll try to simplify the process. Most often, they’ll boil the choice down to just a couple of factors – usually something to do with a number (indicating some kind of value) and the price.
Everyone selling anything can have a ‘Goldilocks’ offering
Regardless of how you structure or promote your pricing options, there is likely a ‘Goldilocks’ amongst them – i.e. the one you most want to sell (Goldilocks = it’s not too hot, not too cold, it’s juuuust right).
If you sell products, the Goldilocks product in your range is likely the option with the most optimised profit margin. Or it may be that you have an over-supply of stock and need to move some extra units.
In a service business (with package pricing) your Goldilocks package might offer the right mix of low-touch, with a perceived high value. This allows you to maximise your billable hours and profits, while still delivering excellent value to your customers.
Different customers need different solutions
Customers have varying needs, so they will always want to choose from a range of options at different price-points.
A few will only have the budget to purchase the cheapest option, regardless of other factors. Therefore, you’ll need to offer an ‘entry-level’ product or service package.
Another small group of customers (with plenty to spend) believe, above all else, that a higher investment always equals more value. They will unquestioningly select the highest priced option.
But there is another group of customers (the vast majority) who are value-driven purchasers. These are the ones standing in front of the shelf of blenders doing fast comparisons of engine wattage and number of accessories vs price.
For them, the value can be hard to calculate. They often aren’t completely comfortable choosing the cheapest solution, yet this entry-level offering is making your higher-priced option look too expensive by comparison.
Studies have shown that faced with two choices, the majority of customers will walk off with the cheaper option tucked under their arm.
How a ‘decoy’ product helps your value-driven customers choose the ‘right’ option
The function of a decoy product or service is to nudge your customers towards choosing the higher-priced of the two options.
Of course, it must be a product or service which you are happy enough to sell, but its real job description is ‘undercover sales ninja’.
It achieves this by, frankly, looking a bit, well, ridiculous.
Back to me and my blender…
I had narrowed my choices down to three options based on a couple of factors – engine power and price.
Option A was a bit ‘too cheap’ to convince me of its quality. It was also less powerful and no frills (i.e. no accessories).
Option B was a lot more money – more than 2.5 times the price of option A (right at the upper end of my budget). It did, however, have a superior engine wattage (these things are important when you’re blending, apparently) and a few nifty accessories that I wasn’t sure I knew what to do with. Plus, it could crush ice. Hello Mojitos.
Option C stood awkwardly on the shelf, causing me to scratch my head. Why on earth would anyone buy this one? It had the lesser motor of option A, was almost the same price as option B and only boasted a couple of dinky looking accessories. No ice crushing capability.
So, what did I choose?
For those playing at home, I am sure that you have worked out that option C was the ‘decoy’. I walked out the door with option B excited to get home and try it out.
Sure, option A was cheap, but it wasn’t really what I needed. I would surely have regretted it with the first use. But it took option C to demonstrate the superior value of option B.
How did it do that? It was priced to be ‘asymmetrically dominant’. Basically, when pricing your decoy, the value should be closer to the lower-priced option, but the price should sit closer to the higher priced option.
Bonus Tip: Middle Position Bias
There’s another tactic I employ when I’m using this pricing strategy with the businesses I coach: always place the Goldilocks offering between the other two options, whether that’s on a shelf or on a pricing list. The product or service you most want to sell should always be option B; this is because humans have a natural tendency to choose whatever is the middle option.
Now you know, you can’t un-see it
Everywhere you go, you’ll start to notice the decoy effect in action. You’ll also notice how effective this strategy is… even when you are aware of it. As I explain to my business coaching clients, that’s because it isn’t about tricking customers, it is about highlighting the value of the options on offer. And, whatever else is true, sales should always be about helping your customers to find the solution that best suits their needs.