SaaS customers like to buy with context. They buy with comparison. And when your pricing page gives them too little context, they play it safe. That is why psychological pricing tactics gain traction in SaaS. One of the most talked-about tactics is decoy pricing. It promises higher Average Revenue Per User (ARPU) without building new features. However, it can also backfire if it feels like a trap. Does it truly benefit both the customer and the business?
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What Decoy Pricing Really Is and What It Is Not
The Decoy Effect works through decoy pricing by adding a third option that is asymmetrically dominated. In plain terms, the pricing decoy sits near your target plan in price, but it is clearly worse in value, so the target plan looks like the sensible choice within your SaaS tiered pricing.
It reframes the choice.
Instead of “cheap versus expensive”, customers now see “good versus better”.
What it is not: a discount. And it is not a magic trick that fixes weak value. If your Pro plan is not genuinely valuable, adding a decoy pricing strategy just highlights the problem faster.
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Why Decoy Pricing Works in SaaS Tiered Pricing
Most users cannot judge value in isolation. If you say software costs $50 a month, nobody knows if that is cheap or expensive until they see what they get and what else exists.
So people lean on anchors.
This is where decoy pricing works. The decoy creates a clean anchor. It gives the brain an easier comparison. Behavioural economics calls this context-dependent choice. When the decoy enters the set, preference often shifts toward the “dominant” option in your SaaS tiered pricing.
That is why a middle option can change behaviour without changing the product.
And yes, in SaaS, that can lift ARPU without engineering effort. It is elegant. It is fast. It often works as part of a smarter pricing strategy for SaaS products.
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The Hidden Cost of Getting Decoy Pricing Wrong
Here is the catch. Customers are not naïve.
If decoy pricing looks like a fake plan that exists only to push people, customers feel played. Trust drops. And in subscriptions, trust is the whole game.
This is where a poorly designed pricing decoy can slide into “dark pattern” territory. Dark patterns are design or choice structures that steer people in ways that benefit the company at the customer’s expense, often by reducing autonomy or making exit harder. Regulators and researchers pay attention to these behaviours, especially in subscription models.
Even if your decoy pricing strategy is not illegal or deceptive, it can still be culturally corrosive. Your team starts thinking, “How do we nudge harder?” instead of “How do we serve better?”. That shift shows up later in churn, complaints, and brand sentiment.
Value-Based Pricing in a World Shaped by Decoy Pricing
Value-based pricing and psychology are not enemies. In fact, they can work together well.
Value-based pricing means every tier has a reason to exist. It serves a customer segment with a real need, a real willingness to pay, and a clear value story.
Customer-centricity means each tier helps a customer make a better decision for their situation. It reduces doubt, clarifies trade-offs, and it supports confidence.
So if you use a decoy, the ethical bar is simple:
- The decoy is not “bad”.
- The decoy is not “unbuyable”.
- The decoy is less compelling than the target, but still legitimate for a real segment.
That is how you keep behavioural pricing tools aligned to trust.
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What a Good Decoy Pricing Strategy Looks Like in Practice
Let’s use an example to clearly see the mechanism.
Original two-tier structure:
- Basic ($29): 5 projects, 10GB, email support
- Pro ($99): unlimited projects, 1TB, priority 24/7 support, analytics
That $70 jump feels like a cliff. Customers ask, “Do I need analytics right now?”. Then they retreat to Basic.
Now add a decoy-like middle plan:
- Basic ($29): 5 projects, 10GB
- Plus ($89): unlimited projects, 500GB, email support
- Pro ($99): unlimited projects, 1TB, priority 24/7 support, analytics
Suddenly, the comparison shifts. Customers stop comparing $29 to $99. They compare $89 to $99. And $10 more for double storage, plus priority support, and analytics feels like obvious value.
That is the decoy effect in action.
However, “good” design does not stop at structure. It also includes:
- Clear progression: each tier adds value in a way that matches maturity (solo → team → scale).
- Clean trade-offs: do not hide limits. Make them explicit.
- Simple language: avoid feature soup. Customers buy outcomes.
- A real segment for every tier: even the “middle” tier should make sense for someone.
How Pricing Teams Should Use a Pricing Decoy
Treat tier design as a behavioural system, not a price list.
Start here:
- Map your customers by stage, scale, and intent. New user, growing team, enterprise workflow.
- Define what “value” looks like at each stage. Time saved. Risk reduced. Revenue unlocked.
- Build tiers as value pathways, not traps.
Then test like a pricing team, not a design team.
- Test the comparison behaviour: where do eyes go, what gets clicked, what gets shortlisted.
- Track conversion quality: upgrades, downgrades, churn, support load, and refund requests.
- Add one more metric: customer confidence. Are customers clearer, or just pushed?
If the decoy lifts ARPU but increases churn or buyer’s remorse, it is not a win. It is deferred pain.
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Guidance for Business Leaders and Executives
Set the cultural rule: pricing exists to serve customers first and revenue second.
That sounds soft. It is not. It is a commercial discipline.
When pricing is customer-led, you earn:
- Stronger retention.
- Cleaner expansion.
- Better referrals.
- More pricing power over time.
Also, invest in pricing capability. Do not treat pricing as a one-off page refresh. Treat it as a core business function that blends customer research, product strategy, and commercial governance.
Yes, higher ARPU improves the funding narrative because ARPU drives Lifetime Value (LTV), and LTV versus Customer Acquisition Cost (CAC) shapes unit economics. But investors also watch churn and trust signals. A tactic that spikes ARPU while damaging retention is not sophistication. It is noise.
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Psychology Should Clarify Value, Not Conceal It
The Decoy Effect works because people decide with context, not in isolation. However, decoy pricing only works properly when it serves value and customers, not just conversion rates. Your tiers should help customers choose the right plan with confidence. That is the goal.
When you treat your pricing page as a decision tool, not just a checkout screen, you stop relying on clever tricks. You build a pricing culture that lasts.
Because pricing shapes how customers experience your business, confusing or forced tiers signal a deeper issue. That is where good pricing work begins. It is not about manipulation. It is about clarity, confidence, and trust.
Because pricing shapes how customers experience your business, confusing or forced SaaS tiered pricing signals a deeper issue. That is where good pricing work begins. It is not about manipulation. It is about clarity, confidence, and trust.
For a comprehensive view of maximising growth in your company, download a complimentary whitepaper on How to Maximise Margins with Price Trials.
Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.
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