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How a decoy Price offer helped this magazine book 43% more Revenue!

This read is about how a premium magazine using a smart pricing strategy to lure more customers to pick a pricing plan which shot up their revenue. The story is about The Economist.

The strategy isn't a complicated one, we all experience it in day to day lives from a fruit vendor to supermarkets.

So, the Economist wanted to offer its customers a plan which had an option of both digital version and a print version to chose from. The company came up with 2 options:

  1. One year access to all the articles, all you can read for $59 a year

  2. Subscription to all 12 issues of the magazine along with access to all articles online for $125 a year.

Naturally, the company knew that consumers inclination would be towards choosing the second alternative over the first, because of the offering.

More and more consumers in the US favoured their first option over the second which led the company to re-work its pricing strategy.

Enter Decoy Effect (Behavioral Economics)

Revised pricing strategy looked like this

So they introduced a print-only offer for $125 a year.

Now the consumer has 3 options to decide from, which included the second alternative which we all will feel is pretty irrelevant to the consumers. Instead, something interesting happened here, the consumers sidelined the online subscription and now the decision was being between the latter two options.

The choice was pretty clear.

With a smart decoy pricing strategy, the economist was able to push its customer to opt for the print and web subscription for $125 a year which looked like a better deal, and the company ended up nudging its consumers to witness a 43% jump in its revenue.

It's not just the Economist, it’s happening everywhere. Grocery stores, Apple Store or even your nearby PVR.

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