Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a $19 Bottle of Olive Oil Explains Price Anchoring at the Grocery Store
Transcript
- Lucas: So last weekend I'm in the grocery store, standing in front of the olive oil shelf — which, if you've ever looked at it, is genuinely confusing. There are maybe fifteen different bottles, ranging from eight dollars to nineteen dollars for the same thirty-two ounce size. Luna: And you stood there long enough to form a podcast episode about it, I'm guessing. Lucas: I did. And the thing I noticed — the nineteen-dollar bottle, this cold-pressed extra virgin from some boutique Italian brand, it wasn't selling. I watched maybe four people pick it up, look at the price, put it back. But then they'd grab the twelve-dollar bottle. Almost every time. Luna: That's textbook price anchoring. The expensive one makes the middle one feel reasonable. Lucas: Exactly. But what's interesting here is how deliberate the whole setup is. The nineteen-dollar bottle isn't there because the store expects to sell a ton of it. It's there to make the twelve-dollar bottle — which has a higher margin — look like the smart choice. Luna: And if those conversations about pricing psychology ever help you make a smarter buy — or just give you material for your next dinner party — you can help keep this show ad-free at buy me a coffee dot com slash fexingo. It's a low-key way to support the work we do. Lucas: Yeah, we appreciate that. So back to the olive oil — the store I was at is a major chain, and they've clearly thought about this. The nineteen-dollar bottle is on the top shelf, eye level. The twelve-dollar bottle is right next to it, maybe six inches lower. The eight-dollar store brand is way down on the bottom shelf. Luna: They're making you compare the top two. The cheap one is almost hidden. Lucas: Right. And the packaging reinforces it. The nineteen-dollar bottle has this heavy, dark glass, a gold label, a handwritten-style font. The twelve-dollar one is simpler but still looks premium — frosted glass, clean label. The eight-dollar one is just a basic clear plastic bottle. Luna: So the anchor isn't just the price — it's the whole visual presentation. They're telling you, 'This is the expensive, quality stuff.' And then the middle one inherits some of that quality halo. Lucas: Exactly. A 2025 study from the Journal of Retailing looked at exactly this — they called it the 'premium anchor effect' in grocery categories. They found that when a high-end anchor product is placed next to a mid-tier product, the mid-tier's sales increase by about twenty-two percent, even if the anchor itself barely sells. Luna: Twenty-two percent is huge. And it's not just olive oil — this happens with pasta sauces, vinegars, even salt. Lucas: Right. But olive oil is a perfect case because the quality differences are hard for most people to evaluate. You can't really taste it through the bottle. So price becomes the primary signal. Luna: And the anchor gives you a reference point. Without the nineteen-dollar bottle, you'd look at the twelve-dollar one and think, 'That's a lot for olive oil.' With it, you think, 'That's actually pretty reasonable.' Lucas: The store I was at had a private-label brand at six dollars too — their own organic one. But it was on a different shelf, about three feet away, next to the cooking oils. So the comparison isn't even in the same visual field. Luna: That's smart. They're segmenting the customer. If you're price-sensitive, you go to the cooking oil section and find the six-dollar bottle. If you're in the olive oil section, you're already willing to pay more. Lucas: Exactly. And the anchor works best when the customer has already self-selected into a premium mindset. The olive oil aisle is like the steak aisle — you're not there to save money, you're there to get something good. Luna: But what about the customer who does pick up the nineteen-dollar bottle? Does the store make money on it? Lucas: Probably a lower margin than the twelve-dollar one. The boutique brand has more negotiating power, and the store might even sell it at cost just to have that anchor. The profit is in the middle. Luna: So the middle option is the decoy target. The nineteen-dollar bottle is the decoy, the twelve-dollar one is the target. That's a classic three-tier structure. Lucas: But it's not always three tiers. Some stores have just two — a premium and a standard. Then the premium still acts as an anchor, but the effect is weaker. The study I mentioned showed that with just two options, the lift for the cheaper one was only about eight percent. Luna: So the third option — the really expensive one — amplifies the effect. It's the same psychology as the popcorn sizes at the movie theater. Lucas: Exactly the same mechanism. The difference here is that the anchor product has to feel legitimate. If the nineteen-dollar bottle looked cheap or fake, it wouldn't work. It has to be convincing enough that the customer believes it's worth the price, even if they don't buy it. Luna: And that's why the packaging and the brand story matter. The bottle has to tell a story of quality. Lucas: Right. And the store reinforces that by putting it at eye level, giving it premium shelf space, maybe even a little sign that says 'Imported from Tuscany' or 'First cold press.' All of that builds the anchor's credibility. Luna: So if I'm a small brand trying to get my product into a grocery store, can I use this? Or is it only the retailer that controls the anchor? Lucas: You can influence it. If you're a premium brand, you want to be positioned as the anchor — that means getting the top shelf, the distinctive packaging, and a price that's clearly above the middle. But you have to accept that you'll sell fewer units. Your job is to make the mid-tier look good. Luna: That's a tough sell for a brand owner. 'Hey, we want you to be the decoy.' Lucas: But it works if you're the one who also owns the mid-tier brand. Some large food companies do exactly that — they have a premium brand and a mid-tier brand, and they use the premium one to anchor the mid-tier. Luna: Like how Nestlé has both San Pellegrino and its own cheaper sparkling water. Lucas: Exactly. Or how some olive oil companies produce both a high-end bottle and a store-brand bottle. The high-end one gives the store the anchor, and the store-brand one gives them the volume. Luna: So the anchor is really a loss leader for the category, not for the product itself. Lucas: That's a great way to put it. And it's a strategy that works across categories — not just olive oil. I've seen it with balsamic vinegar, with chocolate, with coffee beans. Luna: I noticed it with honey recently. There was a twenty-dollar jar of Manuka honey next to a twelve-dollar one, and I bought the twelve-dollar one without even looking at the cheaper options. Lucas: Right. And the twelve-dollar jar probably had a higher margin than the twenty-dollar one. That's the whole game. Luna: So next time I'm in the grocery store, I'm going to look for the anchor product in each aisle. It's like a little game. Lucas: It is. And once you start seeing it, you can't unsee it. But the question I keep coming back to is: does this actually help the consumer? Because on one hand, you're being nudged toward a higher-priced product. On the other, the anchor does provide useful information — it sets a quality benchmark. Luna: I think it's neutral, as long as you're aware of it. The problem is when the anchor is artificially inflated — like a 'was $30, now $15' tag that was never actually $30. But a real premium product at a real premium price? That's just market signaling. Lucas: And the grocery store is one of the few places where the anchor is usually genuine. The nineteen-dollar olive oil is genuinely good — it's just not what most people want to pay. So it's an honest anchor. Luna: That's refreshing. In a lot of other industries — mattresses, furniture — the anchor is often fake. But in food, the quality difference is real enough that the anchor holds up. Lucas: And that's probably why it works so well. People trust that the expensive bottle is better, even if they can't verify it. And that trust transfers to the middle option. Luna: So the takeaway for marketers is: if you're going to use an anchor, make sure it's credible. And if you're a consumer, just be aware that the middle option is often the one the store wants you to buy. Lucas: And sometimes it's actually the best value for the quality. But at least now you know why you're reaching for it.