The Decoy Effect: Ethical Pricing Strategy or Manipulation?

_{[Read time: 4.5 minutes]}

Movie popcorn prices aren’t random — they are strategically designed to drive you to buy the large tub.

• Small: $5.00

• Medium: $7.50

• Large: $8.00

For just 50 cents more, the large feels like a much better deal than the medium. So, you go for the large and walk back to your seat wondering how you ended up with a tub big enough to feed a family for the next week.

That’s the decoy effect in action.

Businesses use this strategy to nudge you toward the choice they want you to make.

Is it just a clever (ethical) strategy, or is it manipulation? And more importantly, can small service business owners like you use it in a way that works — and feels good?

Let’s break it down, explore how you can use it, and talk about why the decoy effect isn’t just about upselling but about guiding behavior.

What Is The Decoy Effect?

The decoy effect happens when you introduce a third option to make one of your other options look way more appealing. That “decoy” is strategically priced and structured to guide the customer toward the choice you want.

For example:

• Basic Plan: $50/mo. (you get A only)

• Silver Plan: $90/mo. (you get A, B)

• Gold Plan: $100/mo. (you get A, B, C, D)

The decoy makes the Gold Plan feel like a steal. Why? Because people compare options side-by-side, not in isolation.

The don’t think, “Is $100 a lot for all that I’m getting?”

Instead, they think, “Wow, for just $10 more the Gold Plan has way more value than Silver Plan for $90!”

Dan Ariely, who studied this in his book Predictably Irrational, found that we’re surprisingly bad at making decisions in a vacuum. Instead, we lean on comparisons to feel like we’re choosing logically — even if our choices are heavily influenced by how the options are framed.

How Can Decoy Pricing Work for Your Business?

For small service businesses, you can guide customers toward whatever tier works best for them — and you.

Here’s how shifting the placement of the decoy can drive behavior:

1 — Encouraging Upsells (by setting the decoy as the middle tier): 

This is the most common setup. You position the decoy in the middle to highlight the most expensive option as the best value.

That makes the high tier coaching feel like a no-brainer.

2 — Reinforcing the Middle Tier (by setting the decoy as the most expensive tier): 

If your middle tier is your sweet spot — profitable, scalable, and appealing — then you can use the decoy to make the middle tier look practical.

The decoy here acts like an anchor. Customers see the middle tier as the “smart” choice — more robust than the basic, without the over-the-top price of the decoy.

3 — Validating the Low Tier (by setting decoy as higher options): 

The decoy can position the low-tier option as the most reasonable and risk-free choice (for customers who are budget-conscious or to serve as a natural starting point).

The decoy here makes the low tier plan feel like a logical entry point while setting expectations that the middle or high tiers deliver much more value. It reassures “starting small” is fine, while leaving room to grow.

What if you don’t want to share your prices until the sales call — does decoy pricing only work visually?

Not at all.

While pricing tables are a go-to way to display the decoy effect, it works in a conversation too. For example, on a sales call, you can guide customers through the options:

"The mid-tier coaching plan is $1,800 and includes A and B. But for just $200 more, the high tier plan adds C and D.”

Is Decoy Pricing Ethical?

Decoy pricing isn’t about tricking people — it’s about giving them clarity.

When used responsibly, it helps customers see the value of your offerings and make informed decisions — while driving them to the services you want to deliver.

Dan Ariely’s research highlights the importance of transparency and fairness.

The decoy should never feel like a trick. Instead, it should serve to clarify choices and emphasize the true value of the options available.

When it’s ethical:

• You’re clear about what each option includes.

• Your most expensive option delivers the value you promise.

• The decoy feels legitimate, even if it’s not the “obvious” choice.

When it feels like manipulation:

• The decoy intentionally exaggerates or misrepresents value to trick customers into making a decision.

• The decoy takes advantage of customers’ lack of knowledge or experience.

• The decoy offers no genuine value, making it obvious and manipulative.

Decoy pricing is about driving behavior.

Whether you want to encourage upsells, reinforce the middle tier, or validate starting small, adjusting where you position the decoy can influence how customer perceive value.

That’s it for this week. Thank you for reading.

See you next week.

— Peter

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