Anchoring decisions: the role of decoy pricing in consumer choices

Abstract

PurposeHospitality firms aim to increase their profits by implementing a variety of marketing activities, including using decoy pricing to provide alternative choices for consumers. Decoys are relatively higher-priced offerings that signal lower value than the other offerings in the consideration set. The purpose of this research is to investigate the influence of decoy pricing on consumer choices across various contexts in the foodservice and hotel industries.Design/methodology/approachAcross the pilot and four main studies, the current research employs a sequential exploratory mixed-method design to investigate the influence of decoy pricing in the foodservice and lodging industries. The qualitative part of this research was based on two focus groups, followed by a pilot study and four main study experiments.FindingsThe results show that decoy pricing escalates consumers’ choices of more expensive product bundles in both restaurant and hotel cancellation policy contexts. However, decoy pricing does not increase the selection of more expensive hotel product bundles.Originality/valueWhile decoy pricing has been utilized as an effective revenue maximization strategy for product placement in retail stores, less is known about how promotional advertisements with decoy offers influence hotel and restaurant customers to choose more costly options. Specifically, this is the first study that explores whether decoy pricing and product/service bundling can encourage customers to select more expensive offers in hotel and restaurant contexts, considering the types of hospitality bundles that may limit this effect.