Series: Pricing Games

Dan Ariely ran a famous experiment with 100 business students. He offered three subscriptions to The Economist:

Web only: $59. Print only: $125. Print plus web: $125.

16 picked web. Zero picked print-only. 84 picked print plus web.

Then he removed the print-only option nobody wanted. Now it was $59 web versus $125 print plus web. Result: 68 picked web, 32 picked the bundle.

Nothing about the two real options changed. But adding a third option nobody buys flipped the winner.

That is the decoy effect. We do not judge prices on their own — we compare. Print-only at $125 made print-plus-web at $125 look like a steal. Take the decoy away, and suddenly $59 looks like the smart buy.

One honest note: this was a classroom demo, not a lab trial. But the underlying effect is peer-reviewed and real, and marketers use it every single day. Look at any “good / better / best” pricing page. The middle option is the one they want you to buy. The expensive one is the decoy that makes it look reasonable.

We think we choose with logic. Mostly, we choose by comparison.

In a field experiment, researchers priced the same product two ways. At $34, it sold okay. At $39 — five dollars more — it outsold the cheaper price by 24%.

Read that again. The higher price won by a mile.

Why? Your brain does not do math at the shelf. It reads left to right and rounds down. $39 lands in the “thirty-something” bucket, and years of conditioning have taught us that a 9 at the end means a deal. The researchers who ran the test — Anderson and Simester, published and peer-reviewed — found the $39 price beat the cheaper $34 by 24%.

Others found the same pattern: prices ending in 99 outsell round prices by about 8%.

Nobody is immune to this. Not you, not me. We all walk past the math and buy the feeling.

So the next time you price something, remember: the customer is not calculating. They are glancing. Price for the glance.

Costco sells a rotisserie chicken for $4.99. It has cost $4.99 for years. Their former CFO admitted they give up $30 to $40 million a year in margin to keep it there. They sell 157 million of those birds a year.

Why would any business do that? Because the chicken is not the business. The cart is.

Nobody drives to Costco for one chicken. You go for the chicken and leave with $200 of other things — the things with real margins. The chicken is bait, priced to pull you through the door.

This game has a name: the loss leader. Sell one thing at a loss, or near it, and make it back on everything around it.

Everyone tells the Gillette version — cheap razors, expensive blades. Fun story, mostly legend. The real Gillette razor cost $5 in 1903, a third of a working man’s weekly wage. The cheap-handle game only showed up after the patents expired.

The lesson is not about chickens or razors. It is this: figure out what pulls people in, and be willing to lose money on exactly that. The profit lives one step behind the bait.