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Decoy Pricing: The Biggest Little Secret in the Publishing World

Contrast, context and camouflage help publishers make more money with the same products using decoy pricing

It can be done, and it’s not magic. All you need are a paid subscription website, a couple of other great products to sell and one secret: Decoy pricing.

More and more publishers are discovering this secret. And it’s not a new concept. You might know of it as the “contrast effect.” A simple description of it from Ask.com:

Contrast effect is the change in perception when different stimuli are put side to side to interact with one another. For example, a weight is perceived as lighter than normal when compared with a heavier weight.

But what does that have to do with pricing? I’m glad you asked.

You may have read this post on our client, the Biblical Archaeology Society. BAS has discovered how the contrast effect drives buyers to choose their most expensive product. Here’s how BAS prices three different products, the digital version of their legacy magazine, Biblical Archaeology Review; an online archive of BAR and other discontinued magazines the society no longer publishes; and a bundled offer for both:

  • Digital magazine: $19.95
  • Digital archive: $29.95
  • Both products bundled: $34.95

Now, $34.95 contrasted with $19.95 seems pricey, doesn’t it? But if you’re like most buyers, you’ll also spot the $29.95 price compared to the $34.95 price – and now $34.95 doesn’t seem so high. Hey, it’s just $5 more … and you can get what’s behind Door #1 and Door #2 for that extra $5! Might as well go for it!

How many people go for it? According to BAR Online Editor Noah Weiner, 2013 saw 883 orders for the digital magazine alone, and 1,069 library sales, and 2,769 combo offers – sales of $97,000 for that offer alone.

Of course, BAR is also available in the Apple Newsstand, where sales of $635 represent about 150 single copies, and sales of $8,410 represent about 600 subscriptions.

Take a look at those numbers: $97,000 from one single combo offer, the most expensive option, made available only at the BAS website. Everything else combined – the Apple store plus the other two cheaper online offers, totaled $58,678: $38,322 less than sales from the expensive combo offer all by itself.

Are you starting to feel the love for the contrast effect?

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DMMS

Consumers are telling us loud and clear what they want—are you listening? How much would you pay for that information? Download a copy of What Consumers Want from Digital Magazines and How to Meet Their Needs for FREE instead, to find out how you can improve your digital magazine rapport with subscribers. Download now.

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The bottom line on decoy pricing

Let’s look at some actual decoy pricing math. The key, as you may have noticed, is first, having a subscription website where you can make these offers together, and second, in the careful pricing of your most valuable product.

decoy pricing model

Most publishers assume that they should price their most valuable product accordingly:

  1. Magazine: $20
  2. Subscription website: $30
  3. Combo of both: $45

After all, $45 is still less than the combined price for both products purchased separately. Consumers will respond to that, right?

Not according to our research, they won’t. We find that 70% of buyers will pick the cheapest offer, while 10% will opt for the second-highest priced product, and only 20% will pick that $45 price – it looks like a lot of money compared to the price just below it. People just don’t want to make that $15 leap from $30 to $45.

Now, let’s adjust that highest price to take advantage of the contrast effect:

  1. Magazine: $20
  2. Subscription website: $30
  3. Combo of both: $35

Our research says the numbers of buyers shift dramatically: Now, 70% will pick the highest price! The middle price still attracts only 10% of orders, and the lowest price is the choice for 20% of buyers. And not only that: You’re also going to get more orders to boot– an additional bonus.

That makes for a dramatic increase in revenue. As you can see, making this non-intuitive pricing decision drives more customers to buy, and a much higher percentage of them to buy the most expensive product. Bottom line: The combo package generates $14,950 more for this generic publisher. That’s almost 60% more in revenue, all without changing anything other than your prices.

For an extreme version of this strategy, see Bloomberg BusinessWeek which leaves no room for deliberation. The whole package for only $5 more, and a $5 gift card to seal the deal.

decoy pricing

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DMMS

Consumers are telling us loud and clear what they want—are you listening? How much would you pay for that information? Download a copy of What Consumers Want from Digital Magazines and How to Meet Their Needs for FREE instead, to find out how you can improve your digital magazine rapport with subscribers. Download now.

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Real-world case studies of decoy pricing

Here’s another example of decoy pricing from The Economist, which has been exploiting this little secret for some time.

1. Website only: $99

2. Print magazine: $127

3. Digital magazine: $127

The website-only offer is not a public offer, but becomes available when someone has exhausted his 6 free views on blog content normally behind the paywall. The user receives this offer through a pop-up for a “starter” subscription that gives them access to premium blog posts.

These are fairly standard prices for a weighty product like The Economist. But there’s more. You can also choose to get both versions of the magazine for far less than double the individual price, which would be $254.

4. Print + digital magazines: $160

Again, the strategy of bundling two products for much less than their actual combined prices isn’t particularly unusual. The highest-priced product, however, is where The Economist is trying to score big:

5. Print magazine, digital magazine + website, audio and special reports: $300

Compared to $127 for one or the other magazine edition, $160 seems like a better buy. We’d bet The Economist sells a lot of bundle #4. And getting all three products is a lot of money, but an easier decision to make – the buyer doesn’t have to actually choose between them. So the $300 price point probably gets its fair share of bites, too, although we would suggest that testing a lower price, like $199 might prove more profitable.

decoy pricing

The Economist has been employing the contrast effect for some time. Before it launched its digital edition in 2011, it offered these subscription options:

  1. Website: $59
  2. Print magazine: $125
  3. Website + print magazine: $125

Dan Ariely, a Duke University professor of psychology and behavioral economics, took note. He posited in a blog post that this was about not just contrast, but context. A potential subscriber might not know whether the website was worth $59, but it was pretty easy to see that the $125 offer for both website and a print magazine that also cost $125 was a bargain. In other words, it was a no-brainer in that context.

(Note: as with everything, we favor testing whenever possible. That said, The Economist may have left money on the table with the pricing above and a combined price of $135 or even $130 may have done better.)

Ariely took this notion a step further. He began surveying students about which option they preferred. Eighty-four percent opted for the combination offer, and to no one’s surprise, no one wanted to pay $125 just for the print magazine. The website-only choice got 16% of students to bite.

But when he dropped the unpopular $125 offer for the magazine alone, the combination subscription became the least popular option instead of the most popular, with only 32% of respondents choosing it. The website option then became most popular, with 68% of respondents making that choice.

Ariely’s experiment confirms the contrast effect theory in pricing: An obviously inferior offer affected the decision-making process and made the combination offer seem more appealing than it did without its ugly stepsister in the mix.

Influencing potential buyers’ decision-making is one benefit of decoy pricing. Another is that you can disguise price increases by making them still seem reasonable in contrast to your pricier combination offers. And since many publishers are still stuck with those legacy rock-bottom, rate-base-driven prices of $8 or $10, this is excellent news.

Take another look at the model above. You know your customers would rebel if you raised your legacy $8 or $10 price to $20. But remember how the $35 bundle in our model appealed to buyers? Seventy percent of them chose that offer. At the same time, 20% went for the magazine-only price, because it was still the cheapest option of the three, even if it is a whopping $20.

Decoy pricing also means you’re deflecting attention away from those price increases. As Mary Van Doren noted in an April 2013 post, The New Yorker launched its tablet edition in 2011, setting the price for either digital or print at $59.99. Without any announcement of a price increase, The New Yorker had just raised its former print price by $20.

It also offered print and digital editions together for $69.99 – just $10 more than the price for either edition alone. We don’t have The New Yorker’s specific sales results, either, but we do know that a steady decline in circulation halted at that time, despite the $20 price increase for its print edition. The $69.99 price successfully deflected its customers’ attention from the price increase for print.

Whether you’re a Duke economics professor or a niche publisher, decoy pricing is a secret that’s readily understood. It’s all about human psychology. And people with products to sell should be ready, willing and able to entice other people to spend the most money on those products as possible.

Do you have experience with decoy pricing and the contrast effect? I’d love to get some additional real-world data, especially if you’ve tried something different from my examples above. Let me know in the comments, and we could feature your story – successful or otherwise – in a post soon.

Originally published in 2013 and updated regularly.

Posted in Digital Magazine Publishing

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6 thoughts on “Decoy Pricing: The Biggest Little Secret in the Publishing World

  1. Don says:

    A great example of combining innovative thinking with good old direct response testing for a big win!

  2. David Ball says:

    I don’t disagree with your premise, but I think it is a little misleading to only look at the revenue side of the equation. Yes, you drive more revenue with the combo offer, but you also have additional cost of delivering the print product. It would be interesting if you could layer in the expense side; I suspect that your examples would still show higher profit, but not at the same multiple you are showing just for revenue.

  3. Ed Coburn says:

    Thank you David. It’s a good point. It’s important to note that the higher priced products are digital. So, for instance, in the Biblical Archeology Society example I cited, the incremental cost of the digital magazines is about $.04 per issue, and the incremental cost of web access (for the full year) is almost certainly less than $.01. So the total incremental fulfillment cost of a subscriber is a quarter a year.

    In contrast to the old print-only days, because of the extremely low cost of fulfilling these digital products the offer that produces the most revenue is almost always the one that produces the greatest profitability.

  4. Bob Kaslik says:

    If you are producing the products anyway the more revenue you can obtain, the greater the commitment and engagement, the greater the LTV. More products enables more communication which should achieve additional product sales if the quality and value is there.

  5. Amanda says:

    I subscribed to Bloomberg Businessweek via that promotion. It really DOES work! 😉

  6. Yes this works and has worked in software sales as well. Good articles thanks!

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