Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a $2000 Watch Anchors a $400 Timepiece Sale
Transcript
- Lucas: Let me set a scene. You walk into a watch store. On the left, a stainless steel chronograph for $400. On the right, a similar-looking model with a sapphire crystal and a better movement for $600. And then, in the center display, a gold-plated limited edition with a moonphase complication for $2,000. Luna: And the $2,000 watch is the anchor, right? It makes the $600 one look reasonable. Lucas: Exactly. But here's the twist: the $2,000 watch isn't just an anchor. It's also a decoy. It exists to push you toward the $600 model. The $400 watch is the value play, but the store actually wants to sell the $600 one — higher margin, better features. The $2,000 watch makes the $600 feel like a steal. Luna: So the $2,000 watch is the decoy, not the anchor? I thought decoys are usually the middle option. Lucas: Classic decoy effect puts a slightly worse option in the middle to push you to the expensive one. But this is the reverse decoy — a premium decoy. It's a product you don't expect many people to buy, but its presence shifts the entire frame of reference. It's the same logic behind the $1,000 bottle of wine on the menu that makes the $80 bottle look like a bargain. Luna: I've seen that in software pricing too. A $500 per month enterprise plan that nobody buys, but it makes the $99 pro plan look affordable. Lucas: Exactly. And in watches, this is a deliberate strategy. A brand like Tissot or Seiko — they'll put a flagship model in the display case that's three times the price of the next tier. The salesperson might not even try to sell it. But it's there to elevate everything else. Luna: So the $2,000 watch is basically a prop? Lucas: It's a functional prop. It changes the customer's internal price anchor. Without the $2,000 watch, the customer compares the $400 and $600 models directly. The $600 one looks expensive relative to the $400. But with the $2,000 watch in the mix, $600 is now the middle option. And middle options are the most chosen. Luna: That's the compromise effect. When you don't know much about watches, you pick the middle one because it feels safe. Lucas: Right. And the store knows that. So they design the display to make the $600 model the obvious middle choice. The salesperson might even say, 'Most people go with this one — it's the best value.' And they're right, because it's the best value relative to the decoy. Luna: But what if the customer actually wants the $400 watch? Are they being manipulated into spending more? Lucas: Well, manipulation is a strong word. The store is presenting options in a way that highlights value. The $400 watch is still a good watch. But the store has every incentive to sell the $600 one. The decoy just makes that choice feel more justified. The customer walks away feeling like they got a premium product for a reasonable price. Luna: So the decoy only works if the customer perceives the $600 watch as genuinely better. If the $400 watch has the same features, the decoy fails. Lucas: Exactly. The decoy needs to be different enough to make the target option look superior. In watches, that's easy — movement type, crystal material, water resistance. You can create clear tiers. But in services, it's trickier. You have to define features that matter to the customer. Luna: I remember an episode of a marketing podcast — maybe this one — where they talked about a hotel minibar using a $6 Coke as a decoy. That's the same idea. Lucas: Exactly. The $6 Coke makes the $8 beer look reasonable. But here's the thing: in the watch example, the decoy isn't the cheapest option. It's the most expensive. That's a different psychological mechanism. Luna: It's like anchoring, but in reverse. You're anchoring high to make the middle seem low. Lucas: Right. And it works because our brains are relative, not absolute. We don't ask 'Is this watch worth $600?' We ask 'Is this watch worth $600 compared to that $2,000 watch?' The answer is almost always yes. Luna: So should every retailer have a premium decoy? I'm thinking of a store that sells only mid-range products — they might not have an expensive anchor. Lucas: They should consider adding one. Even if it's not a high-volume item, the presence of a premium option can lift the entire line. I've seen this in mattress stores — they'll have a $5,000 model that hardly anyone buys, but it makes the $2,000 model feel like a smart choice. Luna: But what about online? You can't physically display a watch next to another. Lucas: Online, you have to design the product page. Put the premium option at the top of the list, or use a comparison table that shows the decoy first. Some e-commerce sites default to sorting by price high to low — that's essentially anchoring you on the most expensive item. Luna: I've seen that on electronics sites. The first result is a $3,000 laptop, then the ones you'd actually buy are $1,200. Lucas: Exactly. And in the watch example, we're talking about a physical retail environment. But the same principle applies to any product line with multiple price points. The key is that the decoy must be genuinely superior in some dimension — not just more expensive. Luna: So if I'm a small business owner selling handmade candles, could I use a premium decoy? Lucas: Absolutely. If you have a standard 8-ounce candle for $15, you could introduce a 12-ounce candle in a decorative jar for $30. Then your 8-ounce candle seems like a bargain. The $30 candle is the decoy. You might sell a few, but its main job is to make the $15 candle look better. Luna: But isn't that just classic price anchoring? What makes it a decoy? Lucas: Good question. Classic anchoring is when you show a higher price first to make the actual price seem lower. The decoy is an actual product that's priced to make another product look attractive. It's a specific product, not just a price tag. In the watch store, the $2,000 watch is a real product with real features. It's not just a reference price. Luna: So the decoy has to be a viable purchase option, even if few people buy it. Lucas: Exactly. If it's clearly a fake — like a watch that's obviously overpriced — it loses credibility. The decoy must seem like a genuine premium option. That's why brands often use limited editions or special materials to justify the price. Luna: I'm thinking about the opposite approach. What if you remove the middle option? Like, only offer the $400 and $2,000 watches? Lucas: That could backfire. Without the $600 option, the $2,000 watch becomes the anchor, but there's no middle ground. The customer might feel that $400 is the only sensible choice, and they might question the value of the $2,000 watch. The middle option is the sweet spot. It's the compromise that resolves the conflict between value and quality. Luna: So the decoy actually helps the customer make a decision. It's not just manipulation. Lucas: I'd argue it's a form of decision facilitation. The customer wants to feel good about their purchase. The decoy provides a contrast that makes the target option look like the wise choice. If done ethically — meaning the target product is genuinely good — it's a win-win. Luna: Let's talk about a real-world example beyond watches. I'm thinking of the classic Economist subscription decoy. Print only $125, digital only $125, print and digital $125. The decoy was the print-only option. Lucas: Right. That's the famous example from Dan Ariely's book. The print-only option is the decoy because it's priced the same as the bundle but offers less. It makes the bundle look like a no-brainer. In the watch example, the $2,000 watch is the decoy, but it's priced higher, not the same. Luna: So there are two types: same-price decoys and premium decoys. Lucas: Exactly. Same-price decoys exploit dominance — one option is clearly worse. Premium decoys exploit anchoring. Both work because of relative comparison. The key is to identify which option you want to sell and then design the context to make it the obvious best choice. Luna: One thing that strikes me: in watches, the decoy is the most expensive. In the Economist example, the decoy is the cheapest. So it's really about context. Lucas: Right. The decoy's position depends on the target. If you want to sell the middle option, use a high-priced decoy. If you want to sell the high option, use a low-priced decoy that's inferior. The decoy always makes the target look better. Luna: That's a useful framework. So for a business owner listening, first decide which product you want to push. Then create a decoy that's either more expensive and similar, or same price and worse. Lucas: Exactly. And test it. You can run an A/B test on your website with and without the decoy. I've seen conversion lift of 15 to 20 percent just by adding a premium tier that nobody buys. Luna: That's significant. I wonder if there's a risk of confusing customers with too many options. Lucas: There is. The decoy effect works best with three options. Four options can dilute the effect. And more than four can lead to choice paralysis. So keep it simple: one value option, one target option, one decoy. Luna: So in the watch store, the $400 watch is the value, $600 is the target, $2,000 is the decoy. Perfect triad. Lucas: Exactly. And the salesperson might never even mention the $2,000 watch unless the customer asks. But its presence in the display does the work. It's a silent persuader. Luna: I love that phrase. Silent persuader. It's like the product itself is selling, not the salesperson. Lucas: And that's the beauty of pricing psychology. The structure of your offer does the heavy lifting. You don't need to convince anyone. The contrast convinces them. Luna: I want to bring up a potential objection. Some people might argue that this is manipulative, especially if the decoy is priced unreasonably high. Lucas: I think the ethics hinge on whether the target product is genuinely a good value. If the $600 watch is a solid product at a fair price, then the decoy is just helping the customer see its value. If the $600 watch is overpriced, then the decoy is deceptive. The decoy shouldn't be used to sell junk. Luna: That's a fair line. So as long as the target product delivers, it's a legitimate strategy. Lucas: Exactly. And I think most businesses are better served by selling good products at fair prices. The decoy just accelerates the decision. Luna: Let's think about another industry. Grocery stores use this with store brands versus national brands. The national brand at a high price is the decoy for the store brand at a lower price. Lucas: Yes, but that's more of a reference price than a decoy. A true decoy would be a specific product that's positioned to make another look good. In groceries, you see it with wine: a $50 bottle next to a $20 bottle and a $15 bottle. The $50 bottle makes the $20 one look like a great deal, and the $15 one looks cheap. The $20 bottle is the target. Luna: So the $50 bottle is the decoy. But does anyone buy it? Lucas: Some do. But the store knows that. They might only stock one or two bottles of the $50 wine, while the $20 wine has a full shelf. The $50 wine is there for its anchoring effect, not for volume. Luna: It's like a loss leader for psychology. Lucas: Exactly. And that's a good way to think about it. You're investing in a product that may not sell much, but it lifts the entire category. Luna: So if you're a small business, you could create a premium version of your product — maybe with better packaging or a small extra feature — and price it significantly higher. Even if you only sell a few, it could boost sales of your core product. Lucas: Exactly. And the cost of creating that premium version might be minimal — a different label, a slightly better material. The return comes from the lift on your main product. Luna: I want to ask about dynamics over time. If customers see the same decoy repeatedly, does it lose its effect? Lucas: It can. If the decoy is always the same, customers might become desensitized. That's why some brands rotate decoys or introduce limited editions. The novelty resets the anchor. Also, if customers learn that the decoy is overpriced, they might discount it entirely. So the decoy needs to maintain its credibility. Luna: So it's not a set-and-forget tactic. You have to manage it. Lucas: Right. And that's where a good product manager comes in. They monitor sales data to see if the decoy is still effective. If conversions drop, they might adjust the decoy's price or features. Luna: One more thing: does the decoy effect work in B2B? I'm thinking of software with enterprise, business, and pro tiers. Lucas: Absolutely. The enterprise tier is often the decoy. It's priced so high that the business tier looks affordable. And the pro tier is the value option. The business tier is the target. I've seen SaaS companies where the enterprise tier is literally called 'Enterprise' and requires a sales call. Its main job is to anchor. Luna: And the features on the enterprise tier are often things that most customers don't need, like dedicated support and custom integrations. Lucas: Exactly. They're real features, but they're overkill for the typical customer. So the business tier — which has enough features — becomes the rational choice. Luna: I think we've given listeners a lot to think about. Let's wrap up with a concrete takeaway. Lucas: Sure. If you take one thing from this episode: look at your product lineup. Identify the product you most want to sell. Then consider adding a premium version — even if it's just a cosmetic upgrade — priced 50 to 100 percent higher. Place it next to your target product in your display or on your website. Then watch your conversion data. You might be surprised. Luna: And if you're worried about ethics, make sure your target product is genuinely good. The decoy should illuminate value, not obscure flaws. Lucas: Well said. And hey, speaking of value — we've been doing these episodes for a while now, and one thing we're proud of is that we keep the show completely ad-free. No sponsors, no commercials. That's a deliberate choice we made from the start, and we think it makes the listening experience better. Luna: Yeah, we love that we can just focus on the content without interrupting you every ten minutes. And if you appreciate that, there's a simple way to support the show. Just go to buy me a coffee dot com slash fexingo. It's a small gesture that helps us keep doing what we do. Lucas: And it really does make a difference. So if these marketing conversations have sparked something you've actually used in your work, consider throwing a coffee our way. No pressure, just an option. Luna: Alright, back to pricing. One last thought: the next time you're in a store and you see a ridiculously expensive item, ask yourself — is this the decoy? And if it is, what are they trying to sell you? Lucas: That's a great question to walk away with. Thanks for listening, and we'll catch you next time on The Pricing Marketing Podcast.