The Decoy Effect: What It Is and How It Works in E-Commerce

Let’s explore the psychology behind the decoy effect, how online retailers apply it in their pricing strategies, and how to choose the right decoy product to boost sales and increase average order value.

Contents:

• What is the Decoy Effect?
• How the Decoy Effect Works in Retail
• Benefits of Using the Decoy Effect in E-Commerce
• Risks of Using the Decoy Effect in E-Commerce
• How to Apply the Decoy Effect in Practice: Practical Tips

What Is the Decoy Effect?

The Decoy Effect — also known as decoy pricing — is a pricing tactic where a seller introduces a third, less attractive option to subtly steer customers toward one of two target choices.

Let’s consider an example with coffee packaging in an online store:

In this case, Option C is the decoy. While it’s not the best deal, it makes Option B look more attractive by comparison — nudging customers to choose it over Option A.

This cognitive bias is often referred to as an asymmetrically dominated choice: the decoy is clearly inferior to one of the other options across all key attributes. It’s this asymmetry that makes one of the main options stand out as the obvious winner.

People naturally like to compare and choose. When there are only two options, our brain weighs features, pros, and cons. But when a third — less attractive — option is introduced, rational comparison takes a back seat. In most cases, we tend to choose the option that appears more valuable when compared directly to the decoy.

To detect whether competitors are using the decoy effect in their pricing strategy, it’s enough to regularly analyze their digital shelves. With Pricer24, you can identify which SKUs act as decoys in your competitors’ assortment and assess how this impacts the positioning of their key products.

The Decoy Effect: A Real-World Example

A classic case of this pricing tactic comes from The Economist’s subscription offer. At one point, the publication presented readers with the following options:

• Online-only access — $59
  
• Print-only subscription — $125
  
• Print + online bundle — $125

When only two options were available — “$59 for online” and “$125 for print + online” — most customers chose the cheaper digital plan. But the introduction of a third, less attractive option (print-only for $125) significantly shifted buyer behavior.

Without the decoy, 68% of users opted for the online plan, while 32% chose the print + online bundle. Once the decoy was added, only 16% still picked online-only — and a striking 84% switched to the print + online offer.

Adding a high-priced but unattractive option (“print-only for $125”) reframed the perceived value of the main offer, created a strong sense of contrast, and nudged readers toward the more profitable choice.

How the Decoy Effect Works in Retail

In e-commerce, the decoy effect is a powerful tool for influencing purchasing decisions and shaping customer behavior. It’s a form of subtle manipulation — instead of applying pressure, it steers shoppers toward a desired option through strategic comparison.

The decoy is usually a “middle” option — not intended to drive sales directly but rather to provide context. This mid-tier option is deliberately structured to be asymmetrically less attractive than the main offer the business wants to promote.

A well-known example comes from Apple’s iPhone lineup. When the flagship iPhone 5S launched, customers were presented with three choices: the previous-generation iPhone 4S for $449, the new iPhone 5C for $549, and the premium iPhone 5S for $649. In this context, the 5S felt like the smartest deal — just $100 more for the “best phone in the world.” Apple continues to use this strategy with every new iPhone release.

Mobile operators apply the same logic in pricing their plans. For example:

• Starter plan: $2 for 5 GB
  
• Basic plan: $3.50 for 10 GB
  
• Premium plan: $4.50 for 30 GB

The basic plan quickly loses appeal — for just $1 more, customers get triple the data with the premium option. That perceived value shift drives most users to upgrade.

The decoy effect can also be implemented through product bundles, different packaging formats, or tiered versions of the same product.

The Decoy Effect in Bundling

Retailers often apply the decoy effect when designing product bundles by intentionally making one bundle less appealing to nudge shoppers toward a more profitable option. For example:

• Sunglasses + lens cleaning spray — $100
  
• Sunglasses + spray + branded cleaning cloth — $150
  
• Sunglasses + spray + cloth + neck strap + branded case — $170

The second bundle feels like a poor deal — “$50 just for a spray and a cloth? Who would pay that?” But the third option suddenly looks like a great value: for just $20 more, customers get a full set of premium accessories.

The unattractive middle bundle serves as a decoy, strategically placed to make the most expensive offer look like the smartest choice.

Packaging Variants

Brands can steer customers toward a desired option by offering packaging that highlights asymmetrical value. This tactic is common in categories like cosmetics, personal care, and household products, where the mid-size variant is deliberately priced to make the largest, most expensive version look like a much better deal.

Product Versions

Electronics and appliance retailers often use this approach by introducing product tiers with varying features. A mid-tier washing machine with modest capabilities at a high price can make the premium model — with 20+ washing modes and a large drum — feel like a smart investment for only a slightly higher cost.

In e-commerce, visual presentation plays a crucial role in enhancing the decoy effect. Highlighting the “best value” option with badges, frames, or price comparison tools — such as “Only $X more for double the memory” — helps anchor buyer perception. These UI elements tap into emotional triggers, reinforce the most rational-looking choice, and reduce friction in the decision-making process.

Benefits of Using the Decoy Effect in E-Commerce

The decoy effect can be effectively applied across various pricing strategies in e-commerce. The key is to select the right decoy. When done properly, this tactic can deliver several business advantages:

1. Increase in Average Order Value

A well-placed decoy nudges customers toward more expensive options, naturally boosting the average order value. The higher-priced item feels justified — because consumers rarely evaluate prices in isolation. Instead, they rely on contextual comparisons, and the decoy creates that contrast.

2. Improved Conversion Rates

Strategically selected decoy products, smart product placement, and strong visual cues (such as badges or highlights) help customers make faster purchase decisions. The comparison helps resolve hesitation and reinforces confidence in the chosen option.

3. Enhanced Perceived Value of the Target Product

The target product appears more valuable simply by being positioned next to a less attractive alternative. There’s no need to upgrade the product features or marketing — the perception of added value comes from contrast alone.

4. Smarter Pricing Management

The decoy effect allows brands to shape customer preferences and control demand without lowering prices or running promotional campaigns. In highly competitive markets, this approach can reduce reliance on discounts and protect margins.

Possible Risks of Using the Decoy Effect in E-Commerce

The decoy effect relies on cognitive biases, which means it comes with potential risks related to how different audience segments perceive this tactic. Let’s explore some of the main challenges e-commerce retailers may face when implementing this pricing strategy.

1. Negative Customer Reactions

If customers feel manipulated, it could lead to negative reactions. This is especially critical for brands that cultivate a strong emotional connection with their customers. Even a single instance of irritation or frustration can result in a loss of trust, negative social media reviews, and an increase in cart abandonment rates.

2. Decline in Sales Due to Poor Decoy Choice

Behavioral patterns vary widely across different audience segments. Factors such as country, region, purchasing power, and the type of product influence how customers perceive and react to pricing options. A poorly chosen decoy or misrepresented product pairing can distort customer perceptions, ultimately leading to decreased sales and a loss of market share.

3. Decision Fatigue

If the decoy option seems illogical, doesn’t highlight the benefits of the target offer, or the differences in price and features are too large, customers may not recognize the value of the “right” choice. This could lead to frustration, decision fatigue, and a total abandonment of the purchase.

How to Apply the Decoy Effect in Practice: Practical Tips

To make the decoy effect work effectively, a clear strategy and careful product selection are essential. It’s not enough to randomly throw together a “tempting” offer. Here are some tips to help gently nudge customers toward the desired product in your assortment.

1. Choose an Asymmetrically Unattractive Decoy: The decoy should be similar to the target product, but clearly inferior in price and value. It shouldn’t compete with the main offer but should emphasize the benefit of choosing the target product.
   
2. The Decoy Should Not Compete with the Main Offer: The goal of the decoy is not to rival the target product but to highlight its value. The decision should be easy and quick to make, with the decoy clearly being less attractive.
   
3. Manage the Manipulation Depth: The difference between the decoy and the target product should be noticeable but not so obvious that the audience suspects manipulation. Subtlety is key to maintaining a positive customer experience.
   
4. Create a Clear Structure: Basic Option, Decoy Product, Target Offer: This is the optimal structure. It avoids overwhelming the customer with too many choices while still showcasing the advantages of the main product.
   
5. Use UX Elements and Design to Strengthen the Effect: Visual cues like labels (“Best Offer,” “Best Price-Quality Ratio”), buttons, color highlighting, font choices, and clear comparisons of features and prices all help guide the customer’s decision-making process. Add brief descriptions of benefits for each option to make the choice even clearer.
   
6. Test Different Decoys and Review Your Strategy: A/B testing is the best way to see how different audience segments respond to and interact with the decoys. Regularly analyze heatmaps and user behavior on the selection page, adjusting products and strategies based on the results of your monitoring.

FAQ

How does the decoy effect differ from a regular discount?

A discount directly changes the price tag. The decoy effect, on the other hand, changes the perception of value and benefit of the offer without reducing the actual price.

For which products and niches is the decoy effect most effective?

This pricing strategy is often used in niches such as electronics, subscription services, software, SaaS products, insurance, and travel services.

Can multiple decoys be used at once?

In theory, yes. However, too many decoys can confuse the customer and make the decision-making process so complicated that they abandon the purchase altogether. An excessive number of options usually decreases conversion.

What is the optimal number of choices, including the decoy, for customer perception?

The most effective model involves three options: the basic, decoy, and target product. In this setup, the basic option doesn’t grab the customer’s attention, and the decoy emphasizes the benefits of choosing the main target offer.