Starbucks and the "Decoy Pricing" Strategy: 

Starbucks, the world-renowned coffee chain, provides a fascinating example of employing the "decoy pricing" method in its offerings. 

 

Introduction to Decoy Pricing:  

Decoy pricing involves offering at least three products, where one of the options (the decoy) is not intended to sell but instead makes the other choices, particularly the most expensive one, seem more appealing. The decoy is typically priced close to the more expensive option but lacks some of its features or benefits, making the pricier item appear to be of better value. 

 

Starbucks' Pricing Model in Action:  

When you visit a Starbucks store or look at their menu online, you often find three main sizes for their drinks: Tall, Grande, and Venti. While the pricing and sizes vary depending on the specific drink and location, let's consider a simplified example: 

• Tall (12 oz) – $3.45 

• Grande (16 oz) – $3.95 

• Venti (20 oz) – $4.15 

 

At a glance, the Venti appears to offer a lot more value, being only 20 cents more expensive than the Grande but providing an additional 4 ounces of the drink. This could lead customers to think, "For just a little bit more, I can get a lot more coffee," making the Venti size seem like a more attractive option. The Grande acts as a decoy here. It's less about pushing the Grande sales and more about making the Venti appear as a better value proposition. 

 

Conditions and Considerations:  

It's worth noting that Starbucks' product offerings, size nomenclatures, and the perceived value between sizes are carefully researched and crafted to appeal to various consumer preferences and psychological triggers. The brand combines the decoy pricing strategy with other factors such as ambiance, customization options, and seasonal offerings, which can influence pricing or perceived value. 

 

By using decoy pricing, Starbucks subtly nudges its customers towards specific purchasing choices, maximizing both consumer satisfaction and company profit.