Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a $7 Pizza Convinced People to Pay $23
Transcript
- Lucas: There is a small pizzeria in Chicago called Tony's Authentic — two locations, family-run, been around since 1996. Last year they changed their menu and within six months their average ticket went up by almost nine dollars. Luna: Nine dollars per order from just a menu redesign? That's not new toppings or bigger pies — that's purely pricing architecture. Lucas: Exactly. And the key was a $7 personal pizza they introduced at the very top of the menu. Now, a $7 pizza in Chicago in 2025 is not profitable after ingredients, labor, and rent. They made maybe 12 percent margin on that item. But what it did was reframe everything else. Luna: So the $7 becomes the anchor — the cheap reference point — and suddenly the $14 medium looks reasonable and the $23 large feels almost premium rather than overpriced. Lucas: Right. Before the change, their menu was flat: three sizes all around the same price per inch. A small was $12, medium $16, large $19. Customers mostly bought the medium because the large was only three bucks more but felt like a splurge. After the change, the large jumped to $23 — a four-dollar increase — but now it was competing against a $7 option rather than a $16 one. Luna: That's a classic decoy frame. The cheap item isn't meant to sell — it's meant to make the middle seem normal and the top seem aspirational. Lucas: Tony — the owner — told me he expected the $7 pizza to account for maybe 30 percent of orders. He thought people would grab the cheap deal. Instead, after six months, the $23 large accounted for 47 percent of sales. The medium did 35 percent. The $7 personal? Only 18 percent. Luna: So the majority of customers voluntarily chose the most expensive option. That's the power of a strong anchor. But I wonder — did the $7 pizza actually lose them money overall, even with the margin on the large? Lucas: Great question. The $7 pizza had a 12 percent margin — so they made about 84 cents per pie. The large had a 51 percent margin — about $11.73 per pie. The shift in mix meant overall store margin went from 28 percent before the change to 37 percent after. So even though they sold some low-margin items, the volume shift to the high-margin large more than compensated. Luna: That's the argument for loss leaders in pricing architecture. But a loss leader traditionally drives traffic for other purchases — here the cheap item is on the same menu, same transaction. You order one pizza, not a pizza and a drink. Lucas: Right. And that's what makes this a pure anchoring play rather than a traditional loss-leader. The $7 pizza doesn't bring people in the door — they were already coming to Tony's. It resets their price perception at the moment of choice. Luna: I want to dig into the exact menu layout. Did they put the $7 at the top left, or center, or did they use a box or something? Lucas: They did two things. First, they listed the $7 personal pizza in its own section at the very top of the menu, separated by a line, with a photo. The medium and large were listed below together, side by side, with the medium on the left and large on the right. That's the classic arrangement: the low anchor is isolated, the comparison pair are grouped. Luna: So the eye goes to the cheap option first, then scans down to the two comparable options. The large is the rightmost — which studies show gets more attention in a two-item set. Lucas: Exactly. And they also changed the price presentation. Before, the prices were listed with a dollar sign and two decimals — $12.00, $16.00, $19.00. After, they dropped the decimals and used a smaller font for the price relative to the item name. The $7 was in bold red. The large was in regular black but with the words 'Chef's Selection' underneath. Luna: That's subtle but effective. The red anchor signals 'deal,' the 'Chef's Selection' signals 'quality.' You're not just pricing — you're framing the decision as a trade-off between value and quality. Lucas: And the data backs that up. Tony surveyed 200 customers after the change. When asked why they chose the large, the top two reasons were 'felt like the best value for the size' and 'the Chef's Selection label made me trust the ingredients.' Nobody said 'because it was cheap.' Luna: Which is the ideal outcome: the expensive option feels like a smart decision, not an indulgence. Lucas: Yeah. And that's really the core of pricing architecture. You're not just setting numbers — you're building a narrative. The numbers are the set design, but the story is what the customer tells themselves about why they chose what they chose. Luna: We've talked about anchoring in previous episodes — the $10 wine that sold the $40 bottle, the handbag at $3000. But this is the first time we've seen the actual spreadsheet of margins. That's the kind of concrete data that makes the theory real. Lucas: I think that's why these marketing conversations can be so useful when they're grounded in a real business. If you're listening and you run a coffee shop, a bakery, a consulting practice — you can test this yourself. Add a 'value' tier that deliberately undercuts your current lowest price. Not to sell it, but to reframe everything above it. Luna: But you have to be willing to sell that cheap item at low or even negative margin. That takes conviction. Lucas: It does. Tony told me the first month he was nervous because the $7 pizza was selling more than he expected — 28 percent of orders. But he stuck with it, and by month three the mix had stabilized. The cheap anchor did its job, and customers self-selected into the higher tiers. Luna: One more data point: what happened to repeat purchase frequency? Did people come back less often because they felt upsold? Lucas: Great question. Actually, frequency went up slightly — about 8 percent increase in visits per customer over six months. Tony thinks that's because the $7 pizza exists as a fallback. If you're on a budget one week, you can still come and order the cheap personal pizza. You don't have to go somewhere else. So the anchor also reduces the barrier to entry for repeat visits. Luna: That's a double benefit: the anchor boosts per-transaction revenue for most customers while keeping the door open for price-sensitive return visits. Lucas: Exactly. And that's where I think a lot of businesses get pricing wrong. They either go all-premium and scare away the budget-conscious, or they go all-value and never capture the upside. The three-tier structure lets you have both. Luna: This kind of deep dive — the actual numbers, the actual menu design — is exactly the kind of thing we try to bring on this show. Lucas: Absolutely. And it's why we keep the show ad-free. No sponsors, no commercials, no interruptions. If you find value in these conversations — if you've ever applied something you heard here — the best way to support that is at buy me a coffee dot com slash fexingo. Luna: Yeah, that link really helps us keep doing this without having to sell ad slots. It's a simple way to say this content matters to you. Lucas: So back to Tony's numbers. One detail I haven't mentioned: they also introduced a 'create your own' option on the medium and large tiers, priced at $16 and $25 respectively. But the $7 pizza was only available as a fixed Margherita. No customization. Luna: That removes the friction from the anchor. You can't complicate the cheap option with choices — it's a simple, fast decision. Meanwhile the expensive options invite you to customize, which increases perceived value and engagement. Lucas: Exactly. And the customization upcharge on the large was only $2, which felt small compared to the base $23. So people who customized spent $25, and the margin on those was even higher — about 56 percent because the extra toppings cost very little. Luna: So the anchor not only drives people to a higher tier — it also creates an upsell path within that tier. That's pricing architecture working at two levels. Lucas: Yeah. And Tony didn't read a pricing textbook. He said he got the idea from a hotel menu he saw on vacation — a $12 burger next to a $38 steak. He thought, 'Why can't I do that with pizza?' Six months of data later, it's the most profitable change he's ever made. Luna: And now we have the case study to share. I think the takeaway for anyone listening is: look at your lowest-priced offer. Is it really your anchor, or is it just your cheapest option? If it's the latter, consider making a deliberate loss leader that reframes the rest. Lucas: And if you do, track the margins. Don't just watch revenue — watch mix shift. That's where the real story lives.