How Apple, Netflix, & Starbucks Use Psychology to Charge You More

The “right” price isn't just about cost - it's also about context.

Prof. Dan Ariely wanted to figure out if how a price was presented would affect its sales.

So he set up an experiment with The Economist, a well-known British financial magazine.

He showed people three subscription options and asked them to choose:

• $59 for a digital subscription

• $125 for a print subscription

• $125 for a print + digital combination subscription

That middle option looked like a mistake.

Who would pay for a print-only plan when they could get both the digital + print versions for the same price?

But that middle option was actually a decoy choice - a purposefully bad offer designed to make another option look better in comparison.

In this experiment, zero people bought the print-only version (the decoy).

84% of customers purchased the print + digital combo, and 16% bought digital-only.

Total sales were $11,444.

Next, the team ran an experiment with no decoy.

There was only a digital version ($59) and a print version ($125).

In the “no decoy” version, 68% of customers bought the digital version, and 32% bought print only.

Total sales were $8,012.

👉 Having a decoy option raised total sales by 42%+ ($3,432).

This is called the Decoy Effect, and it can help you grow your sales and profit.

Here’s how it helped one of my one-on-one clients:

Julia runs leadership workshops.

She offered two ways to work with her:

• A half-day workshop

• A 3 day intensive training.

The half-day workshop was pretty reasonably priced, but it wasn’t very profitable for Julia.

She put up with the lower priced workshop because it felt like it a good way to get a foot in the door and try to upsell clients to her 3 day training or offer paid support down the road.

In reality, pretty much everyone chose her lowest-priced option and no one ever called back to buy the 3 day training or ongoing support.

Which was a problem because the cheap half-day workshops were actually very expensive in terms of Julia’s time -

She had to prep, travel, and lead a 3.5 hour workshop for a relatively low price and it was beginning to wear her down.

Not just financially, but psychologically.

So when Julia reached out to me for help on ways to make her business more profitable, we started with her offer structure - creating another training to make her premium offer seem more attractive.

Julia added a “decoy” 2 day training that was close enough in price to her 3 day option to push people toward considering the most expensive package.

Suddenly people were much more interested in her 3 day training, and she secured two clients for this option within a few weeks of introducing it.

That was the equivalent of selling 7 half-day workshops, and a lot less time spent finding new leads, jumping on calls, and signing up new clients to a low-profit offer.

Julia got more money in less time, with fewer headaches.

All by adding a decoy.

Why did this work?

Because psychology tells us something crucial about how people make decisions:

We don't know what things "should" cost.

So we use context clues to figure out if something is a good deal.

The Decoy Effect is why the medium and large sizes at Starbucks are closer in price than the small and the medium:

It’s why Netflix includes a Standard plan that makes Premium look great in comparison:

And why a $45 bottle of wine makes the $50 bottle seem like a bargain.

Because the right price isn't about cost - it's about context.

Until next time,
Jen

PS. Every day I help people create 2x more effective marketing (so their sales and profit can 2x, too) using psychology and behavioral science.

One way I do this in through my self-directed video courses.

The Spring Forward Flash Sale is now live for my lifetime, Unlimited Course Access membership.

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