OnDemand WTP Pricing Research

The Decoy Effect: One Pricing Strategy You Don’t Want to Overlook | Freshplum

It’s common sense to want your product to look good, and one tried-and-true way to make that happen has always been through contrast. If you can compare your product favorably against a competitor’s product, then you should do it. Similarly, it is not uncommon to see a brand or a store offer a product that exists only for the purpose of making another product look better, or simply to adjust the products on their shelves to highlight certain items over others. For example, the high priced iPhone 5s ($199) can make a more moderately priced iPhone 5c ($99) look like a bargain. Alternatively, the 5c might also look like a great purchase if it were next to an older iPhone with fewer features. In both of these cases, the set of product choices can have a meaningful impact on what a customer chooses.

Using another product to create a contrast is straightforward. Things start to get interesting when we have three alternatives to choose from.

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The Decoy Effect: One Pricing Strategy You Don’t Want to Overlook.