When I talk to my kids about money, I love sharing clever marketing tricks designed to make us spend more than we planned. They especially enjoyed The Entrepreneur and the Two Cola Machines (which I highly recommend reading), a story about a smart pricing tactic that got people to spend more.
In this blog, I share the fascinating pricing strategy called the decoy effect. And I’ll tell you a fun story about how a “pricing mistake” can actually be a genius marketing move.
Teaching your kids about these tactics gives them the power to make smarter financial choices. Instead of spending impulsively, they’ll be more mindful about where their money goes—helping them follow the first rule of wealth: Keep 10% of everything you receive. By building this habit early, they’ll grow up with a strong financial foundation and the confidence to manage money wisely.
Marketing Technique: The Decoy Pricing Strategy
Let's assume you are at the cinema and want to buy some popcorn. The menu looks simple:
🍿 Small: $4
🍿 Large: $6.50
In this scenario, you might think, “Well, I’m a little hungry, but not that much, so maybe I’ll just get the small.” Or, if you were feeling extra hungry, you might decide on the large. The decision is likely to be driven by how hungry you are.
As you'll know, there are never just two choices. There is the 'medium size'.
In this case, let's assume the medium is priced at $6.50. Now everything has changed.
🍿 Small: $3
🍿 Medium: $6.50
🍿 Large: $7
Now you’re thinking, “The large is only 50 cents more than the medium. It feels like a better value, even if I wasn’t planning on eating that much.” And that’s exactly what the cinema wants you to think.
By positioning the medium so close to the large, the decoy effect is in play. The medium popcorn makes the large seem like the better value, even though you might not have really needed that much popcorn in the first place. You end up spending more because you're focusing on value instead of hunger.
The cinema never intends to sell any medium-sized popcorn - it's only there to get people to spend more. The above is the typical decoy situation, and the more we realise it is there, the more we can ignore the 'medium' and focus on the two other options and make decisions based on factors like how much we need or want the thing we are looking to buy.
Below is a more extreme and clever version. It's a story that I heard, I'm not sure if someone actually did this but I wouldn't be surprised.
The "Mistake" Pricing
There was once a shopkeeper selling T-shirts who wanted to encourage more bulk orders. They started with the traditional approach of offering a discount for purchasing multiple T-shirts:
👕 5 T-shirts for $30
👕 10 T-shirts for $45
This led to a good increase in sales, but despite the bigger discount, not many customers were opting for the 10-T-shirt deal.
The logical step might have been to offer an even bigger discount for 10 T-shirts. However, instead of following that path, the shopkeeper introduced a new offer:
👕 5 T-shirts for $30
👕 8 T-shirts for $48 (New Deal)
👕 10 T-shirts for $45
Suddenly, a lot more customers started buying 10 T-shirts. Why? Because it was actually cheaper to buy 10 T-shirts ($45) than to buy 8 ($48).
The shopkeeper’s pricing strategy made it feel like a "mistake" — customers thought they were getting a better deal and rushed to take advantage of it. In reality, the shopkeeper never intended to sell the "8 T-shirt deal." It was simply a clever tactic ("decoy") designed to make the 10-T-shirt offer seem like an irresistible bargain, driving more sales.
It also created a sense of urgency as customers felt the 'mistake' would be corrected soon and so wanted to grab the deal whilst it lasted (even telling their friends).
Teaching Children Mindful Spending and Business Skills
Just like with other marketing techniques, understanding how the decoy tactic works helps kids (and adults!) make smarter money decisions.
Here's how it benefits them:
Mindful Spending: When they recognise that certain prices or deals are intentionally set up to influence their decisions, kids can avoid falling into the trap of spending more than they need to. I try to get my kids to spot the decoys when we are out and about.
Nurturing Young Entrepreneurs: If they understand these strategies, kids can use them in their own businesses to sell more products or services. By recognising the power of pricing, they can make more informed decisions when they start their ventures.
What’s the next lesson you’ll teach your kids about money?
If you enjoyed this blog, then. I recommend reading the following:
Join Our Newsletter
Thanks for reading! If you want more actionable tips and strategies, join thousands of families who subscribe to my newsletter. In each newsletter, I share stories and ideas to help you teach your kids about money so they grow up to be financially savvy and successful. Click below to join and get bonus content and resources!
Grandpa's Fortune Fables Book
To help your kids learn about money, grab them a copy of my best-selling book, Grandpa's Fortune Fables. Available on Amazon or as part of the Wealthy Kids Program (which includes access to our online course and kids' worksheets and games).
