Decoy pricing

doughDon’t put your prices down, use a decoy.

Let me explain the idea with a case study from Williams-Sonoma, an American publicly traded consumer retail company that sells kitchenwares and home furnishings.

Williams-Sonoma introduced a home bread making machine for $275. Sales were significantly lower than expected. One option was to discontinue the product, another was to reduce the price. But before either of those options were taken Williams-Sonoma retained a marketing research company who suggested the decoy strategy. This was to introduce a slightly better bread making machine that was priced 50% higher than the $275 model. In other words, they would have a product that was only marginally better but at a price of $415.

Once the new $415 machine was introduced, the sales of the original $275 model began to grow. What was going on? Simply, the consumer spotted the $415 product and used that as a price anchor in their minds. Then, the $275 bread maker, which was almost as good, was identified as being a bargain.

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