From the course: Pricing Strategy: Value-Based Pricing
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Use decoys and mental accounts
From the course: Pricing Strategy: Value-Based Pricing
Use decoys and mental accounts
- You may have heard of the decoy effect in pricing psychology. The decoy effect refers to a buying scenario where the buyer presents some offers to the customer not because she thinks he's going to buy, but only for the purpose of influencing the customer's perception about the different offering. Hence the term decoy. Before I show you an example, I need to say two things. First, decoys are very powerful. And secondly, don't try to fool your customers. As we say, it's a small world, and a long line. At my business school I did an experiment with my participants. So half of the group I gave a choice between two cameras. A low end camera and the mid-range camera. I described the price and features of the cameras, and about 30% went for the low end, and 70% went for the mid-range camera. Now the other group got three cameras, the low end and the mid range, but I added a third camera on the top level, and this camera is very expensive, but not much better. So in other words, the third…
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