Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a 500 Dollar Hotel Suite Anchors a 200 Dollar Room Upgrade
Transcript
- Lucas: Luna, you ever book a hotel online and notice that the first room listed is something absurd like a $500 suite with a balcony and a soaking tub? Luna: All the time. And I always think, 'Who actually pays for that?' But then I scroll down and the standard room is $199, and the upgrade to a better view is $219. Lucas: Exactly. That $500 suite is rarely meant to sell. It's an anchor — a deliberate price decoy designed to make the $20 upgrade to a 'deluxe' room feel like a reasonable splurge. Luna: So the hotel isn't trying to sell the penthouse. They're selling the upgrade. And the $500 room exists just to make the $200 room look like a bargain. Lucas: Right. And the data backs this up. Revenue management teams at chains like Marriott and Hilton have been refining this for years. They know that when you show three tiers — let's say standard at $199, deluxe at $219, and suite at $500 — the deluxe becomes the 'compromise' choice. Luna: I've definitely been that customer. I see the $500 suite and think, 'Well, the $219 room is basically the same but reasonable.' And I click book. Lucas: You're not alone. In one study from a major hotel chain, simply adding a high-priced 'premium' room to the booking flow increased upgrade uptake by nearly 20 percent. The anchor didn't sell — but it made the mid-tier look like a smarter choice. Luna: That's a huge lift. And it costs nothing to add a line on a website. So why doesn't every hotel do this? Lucas: Some do, but not all execute it well. The tricky part is that the anchor has to be credible. If the $500 suite is a broom closet with a mini fridge, the comparison breaks down. And in all-inclusive resorts, the tactic can backfire because guests know the upgrade prices are inflated. Luna: I've heard that. At some resorts, the anchor room is so far out of reach that guests just ignore the whole upgrade menu and stick with the base option. Lucas: Exactly. The anchor has to be aspirational but not laughable. And the gap between the anchor and the target must be wide enough to create contrast but not so wide that the target seems cheap by association. Luna: So what's the sweet spot? Give me a real example. Lucas: Take a mid-range Marriott property I looked at recently. Standard room: $189. Deluxe with a view: $209. Suite: $450. The $450 suite is clearly the anchor — it has a separate living area and a sofa bed, but it's only 30 percent bigger than the deluxe. The jump from $209 to $450 feels steep, so the $209 becomes the obvious value play. Luna: And the hotel probably makes more margin on the $209 room because the incremental cost of a better view is basically zero. Lucas: Exactly. The revenue management team knows that the marginal cost of upgrading a room from standard to deluxe is just housekeeping and maybe a nicer showerhead. So the extra $20 is almost pure profit. Luna: This is such a clean example of how pricing psychology works in practice. And it's not just hotels — I've seen this in car rentals, flights, even SaaS pricing tiers. Lucas: Yeah, the three-tier structure is everywhere. But hospitality is a great case because the anchor is physically real — you can walk past the suite door. That tangibility makes the contrast more visceral. Luna: You know, this reminds me — if today's episode was worth, say, the price of a coffee, there's a way to keep these conversations going without ads. It's at buy me a coffee dot com slash fexingo. Lucas: Yeah, listener support is what keeps this show independent and focused on real pricing examples like this one. No pressure, but if you've ever gotten a practical takeaway from an episode, that link helps. Luna: So back to hotels. What about the digital upgrade flow? I know some hotels send an email before check-in offering a paid upgrade. Lucas: That's actually where the anchor effect gets even more interesting. When you book a standard room at $199, the pre-arrival email might offer an upgrade to a 'city view' room for $30 per night. The anchor here is the original $199 — the guest already owns that price mentally. Luna: So the $30 feels like a small add-on compared to the $199 they've already committed to. That's a classic 'pain of paying' reduction. Lucas: Right. And some hotels even show a 'regular' upgrade price of $80 crossed out, with an 'exclusive pre-arrival' price of $30. That's a double anchor — the $199 base and the $80 fake retail price. Luna: Does that actually work? Or do guests see through it? Lucas: It works, but with diminishing returns if the guest has stayed at that hotel before. A repeat guest knows the upgrade was $20 last time. So hotels have to vary the anchors or bundle the upgrade with something else — like breakfast credits — to reset the comparison. Luna: That's smart. So the anchor isn't static — it has to evolve with the customer's experience. Lucas: Exactly. And that's where a lot of pricing strategies fail. They set the anchor once and never revisit it. But customer expectations change. The $500 suite that worked as an anchor in 2023 might need to be $650 in 2026 because travelers have seen more luxury inventory on social media. Luna: So the anchor needs to stay ahead of the customer's reference point. That requires constant testing. Lucas: Absolutely. And the best hotel revenue managers are running A/B tests on their anchor tiers all the time. They'll test a $450 anchor versus a $550 anchor and see which one drives more upgrades at the $209 price point. Luna: I imagine the $550 anchor might make the $209 look like even more of a steal, but it could also scare away budget-conscious guests who see the whole list and bounce. Lucas: That's the risk. If the anchor is too high, some guests feel the hotel is out of their league and they leave the site. So there's a Goldilocks zone. The research suggests the anchor should be roughly 2 to 2.5 times the price of the target tier. Luna: So for a $200 target, the anchor should be around $400 to $500. That matches the example we started with. Lucas: Exactly. And one more thing — the name of the anchor tier matters. Calling it 'Presidential Suite' or 'Penthouse' signals exclusivity. But calling it 'Premium Plus' might not trigger the same aspirational anchor. Luna: So the language itself is part of the anchor. 'Suite' sounds grander than 'room,' even if the square footage is similar. Lucas: Right. And that's why you'll see hotels name their tiers things like 'Ocean View,' 'Oceanfront,' and 'Penthouse Oceanfront.' The middle tier becomes the 'sensible splurge' because the top is so named and priced. Luna: I'm thinking about how this applies to other industries. If I'm a SaaS company with a $50 plan, I should show a $150 enterprise plan as the anchor, even if only 5 percent of customers ever buy it. Lucas: Exactly. And the enterprise plan should have features that are clearly aspirational — dedicated support, custom integrations — so the $50 plan feels like a good compromise. Luna: One last thing — does the anchor always have to be a higher price? Could you anchor with a lower price to make a premium feel justified? Lucas: You can, but that's a different psychological move. A low anchor — like showing a basic room at $149 — can make the $199 standard room feel like a big jump. That's a 'loss aversion' play. But the high anchor works better for upgrades because you're framing the decision as a gain — you're getting a suite-level experience at a fraction of the price. Luna: So the high anchor is about aspiration, the low anchor is about fear of missing out. Both work, but for different segments. Lucas: Exactly. And that's the nuance. Hotels understand this deeply. Next time you book a room and see a $500 suite, you'll know it's not an accident. It's a carefully placed anchor designed to make your $209 upgrade feel like the smartest decision you'll make all day. Luna: And maybe you'll even click that upgrade. I know I will.