Friday, June 27, 2014

Beware of Pricing: The Decoy Strategy

The Decoy Price Strategy is presenting in an advertisement three options, and two are the same price; however, one of the two similarly priced products is inferior. The product that is inferior and has an equal price is the decoy. Dan Ariely, a behavioral economist, did a study on an advertisement by the economist newspaper. They offered selling subscriptions for its online website for fifty-nine dollars; however, the other two options were 125 dollars for both online article access and the printed newspaper, or the printed newspaper alone. Dan found in his sample survey that sixteen percent would choose the online subscription, and the rest would choose the online and printed subscription. The decoy can be seen as the printed newspaper, since no one chose that option. Dan did the survey a second time without the decoy, finding that the online subscription would be prefered sixty-eight percent of the time. The decoy pricing strategy is clearly more profitable because the majority chose the more costly subscription price. The third option lets people ponder a more informed decision; however, the effect can be skewed to the hope of the corporation. I am pondering, showing the Apple website and their prices of the iPhone in our in class presentation. They showed three products, and I am surprised that they do not display the iPhone 5 with the iPhone 5s and 5c. Apple chose to show the iPhone 4s instead of the iPhone. There were many options for the comparison of the three products, but the pricing tells us what offer is the decoy, and what product that they are trying to sell. The two products that were the same price hinted me at that. The simplest option for the 5s had only 16 gigabytes of memory and a price of 199 dollars. I could tell that the 32G iPhone 5c is the decoy because it cost the same, and it looked a lot worse than the 5s. Appearance is important to the decoy pricing strategy. I was also surprised that they had a buy now button that did not indicate any specific one of the three, which can reveal the product that they plan to sell the most, and my suspicion was right. The 16G iPhone 5s was displayed first on the buy now link. This is one of many pricing strategies.

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