Forcing a customer to buy a specific product size: Decoy pricing – Dr. S Shyam Prasad

27 Sept 2023.

1. Introduction

“Unwilling customer can’t be forced to buy product: Court,” reads a headline in TOI dated September 10, 2023 (page 4). A question that marketing class students often raise is, can marketers force customers to buy certain products? Certainly not. Am I contradicting my topic of writing? Once again, certainly not. The truth is – the semantics of the word “forced.” In the court case mentioned above, a customer was to buy a product whose price the firm increased after the customer had paid an advance. He was unwilling to pay the revised price and asked for the cancellation of the order, which the firm refused to do. Hence, the firm was forcing the customer to pay a higher price, which he was unwilling to do, and the court came to his rescue. The ‘force’ I am talking about is a firm leading customers psychologically to buy a particular product size. They adopt a tactic known as decoy pricing.   

2. Decoy Pricing

Decoy pricing is a tactic firms adopt to “force” customers’ choices. Often, while making a purchase, customers face the dilemma of choosing between products with different prices and attributes. The above looks normal till the firm steps in and wants to maximize the sales of one particular product. This is when the firm uses a pricing method known as decoy pricing to lead the customer to a particular choice. The “decoy” consists of either a product with a slightly lower price but much lower quality or a product with a much higher price but slightly higher quality. The decoy effect has two specific effects: the attraction effect and the compromise effect.

2.1 The attraction effect

To illustrate the decoy–attraction effect, let us take a hypothetical example. Suppose a customer plans to buy a laptop and has a consideration set. Let us assume that, for simplicity, everything else remains constant, and there is variation only in the screen size and the price. Some consumers may choose a larger screen, and some will want a laptop that costs less. Let us say the products are available, as shown in Table 1.

Table 1

In the above situation, some consumers will prefer A for its lower price, while others will prefer B for bigger screen size.

Now, suppose the firm wants to increase the sale of B, it will introduce a new variant, C (the “decoy”). See Table 2. Variant C is a slightly lower price than B but with a much lower screen size. 

Table 2

The addition of variant C – given that for a slightly higher price, one can have a larger screen size leads the consumers to choose B more often than in the previous case when variant C did not exist. The decoy variant C acts as a basis for comparing A and B. Because the price difference is large compared to the size difference between A and C while the price difference between B and C is marginal compared to the size difference, it leads (“forces”) the customers to choose B. Variant C is, therefore, a decoy whose sole purpose is to increase the sales of B. The company does not expect C to sell.

Conversely, if the firm desires to increase the sales of A, it will introduce a decoy variant which is slightly lower in price than A but with a much smaller screen size, as shown in Table 3. The similar logic as discussed above will lead more customers to opt for A

Table 3

The above is not limited to theory or academic interest only. The following is a real-life example.

The excerpt is adapted from an article cited (Grasset, 2015)

“To illustrate the attraction effect, let’s take the example of The Economist, a famous newspaper that implemented a decoy pricing method for its printed and numeric editions. The printed edition costs $ 150 a year, the digital edition costs $50 while the bundle (also see bundle pricing) containing both the printed and the digital editions also costs $150 just like the printed edition alone. The printed edition sold on its own (without the digital version) can be viewed as a decoy pricing method aimed at encouraging customers to buy the whole bundle. In case the bundle option was not available, we can assume that 80% of customers would purchase only the digital version, and the remaining 20% would opt for the paper version. However, following the introduction of the bundle option, 50% of customers now chose to go for the bundle, 50% went for the digital version only, meaning that 0% of customers opted for the printed edition. The 0% is not a pricing anomaly in this case. Rather, this decoy pricing method aims at maximizing the sales of the bundle. The digital edition is perceived to be “free” when included in the bundle and customers like free things.

The Economist example clearly demonstrates the “attraction effect”; an effect that can be considered as one of the main phenomena associated with decoy pricing.”

2.2 Compromise Effect

According to the compromise effect, consumers prefer “median” products (Simonson & Tversky, 1992). In other words, when consumers are faced with the choice of three products, they are not likely to go for the lowest price product because they assume that it is inferior in quality to the other two. Similarly, they are not likely to go for the highest-priced product due to their assumption that the product has fancy or unnecessary features. Most consumers choose the median product, arguing that this type of product is likely to have an acceptable level of quality and reasonably priced. It is assumed that the consumers follow “extremeness aversion.” Building on the above theory, the firms introduce a decoy product, depending on which product they want to sell more. If they want to sell the higher priced product, say B, of the two products A and B, they will introduce a top-notch product C with a very high price to create the median effect on the product B. Conversely, if they intend to sell the cheaper of the two products, i.e., A, they would introduce a product D with a marginally lower price than A but with low –quality, making the product A appear in the median and more attractive.  

3. Conclusion

In conclusion, it may be said that the marketers use the decoy pricing method to lead the customers to choose a product of marketers’ choice. In other words, marketers “force” the customers to arrive at a choice of firm’s preference. This write-up would be useful to management students studying pricing methods.

4. References

Grasset, G. (2015, July). Decoy Pricing. Retrieved September 10, 2023, from Lokad: https://www.lokad.com/decoy-pricing-definition/#:~:text=Decoy%20pricing%20is%20a%20pricing,with%20different%20prices%20and%20attributes.

Simonson, I., & Tversky, A. (1992). Choice in context: tradeoff contrast and extremeness aversion. Journal of marketing research.