Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a $10 Wine Sold a $40 Bottle The Chateau Effect
Transcript
- Lucas: Have you ever walked into a high-end tasting room in Napa and seen a bottle of Cabernet for two hundred dollars, right next to one for forty, and thought, 'Forty dollars actually seems reasonable?' Luna: All the time. And I usually leave with the forty-dollar bottle, feeling like I got a deal. Lucas: Exactly. That's not an accident. That's a deliberate pricing tactic that marketers call 'the Chateau effect' — named after the old wine-trade practice of listing an absurdly expensive wine on the menu specifically to sell the mid-tier bottle. Luna: So the expensive bottle is never meant to sell? Lucas: Correct. It's a decoy. In fact, in many high-end restaurants, the most expensive wine on the list is the one that sells the fewest bottles — but it's the one that justifies every other price on the list. A 2019 study by marketing professor Nailya Ordabayeva at Boston College found that adding a single premium-priced item to a two-option set increased the share of consumers choosing the mid-tier option by 23 percentage points. Luna: Twenty-three points? That's massive for just adding one item you don't expect to sell. Lucas: It is. And the effect holds across categories. Ordabayeva tested it with speakers, hotels, and even charitable donations. In every case, a high-price decoy made the middle option look so reasonable that conversion rates jumped. Luna: I want to push back a little, though. Isn't this just the decoy effect that you and I have talked about before? Episode three was literally the decoy effect. Lucas: Fair point. But the decoy effect usually involves a third option that's asymmetrically dominated — worse in some way than the target. The Chateau effect is a special case where the decoy is superior on every dimension except price. It's not dominated; it's aspirational. And the psychology works differently. The expensive option doesn't make the mid-tier look like a better deal on features — it resets the consumer's reference price for the entire category. Luna: So it's about anchoring, not just comparison. Lucas: Right. When you see the two-hundred-dollar bottle, your brain recalibrates what 'expensive' means. Suddenly, forty dollars feels like 'moderate' instead of 'splurge.' That anchor sticks even if you never seriously consider buying the expensive one. Luna: And you mentioned this works with charitable donations too. How does that play out? Lucas: Ordabayeva's team ran a study where they offered donors three donation levels: ten dollars, twenty-five dollars, and one hundred dollars. When the hundred-dollar option was present, the average donation was twenty-three dollars. When they removed the hundred-dollar option and showed only ten and twenty-five, the average dropped to seventeen dollars. That six-dollar lift is pure anchor effect. Luna: Interesting. So even though almost nobody chose the hundred-dollar tier, it still moved the needle. Lucas: Exactly. And the effect is robust enough that companies have built entire pricing models around it. Take Dollar Shave Club before Unilever acquired them. They launched with a three-tier subscription: the Humble Twin at six dollars per month, the 4X at nine dollars, and then the Executive — a premium razor with all the bells and whistles — at twelve dollars. But they also sold a one-time blade bundle for nine dollars. Luna: Right, the nine-dollar bundle was the decoy. Lucas: Exactly. The bundle had fewer blades per dollar than any subscription tier. It existed only to make the six-dollar subscription look like a no-brainer. In their early pitch decks, the founders explicitly called it 'the anchor price.' Luna: So the nine-dollar bundle sold maybe zero units, but it sold the six-dollar plan. Lucas: That's the Chateau effect in action. And it's not just consumer goods. I've seen B2B software companies use the same tactic. A project management tool might list a free tier, a ten dollar per user Pro tier, and an Enterprise tier with a 'contact us' price. The Enterprise tier almost never sells to small teams, but it makes the Pro tier feel like a bargain — especially when the free tier is deliberately feature-limited. Luna: But does it work in B2B? I'd think procurement teams are more rational, more price-sensitive. Lucas: You'd think so, but the data says otherwise. I spoke with a pricing consultant who works with SaaS companies, and he shared a case study from a CRM provider. They had three tiers: Starter at twenty-nine dollars per user per month, Professional at fifty-nine dollars, and Enterprise at one hundred and forty-nine dollars. The Enterprise tier had maybe five customers total, but when they tested removing it, conversion on the Professional tier dropped by 18 percent. Luna: Eighteen percent drop just from removing a tier nobody used? Lucas: Nobody used. The Enterprise tier existed purely as an anchor. Without it, the Professional tier suddenly looked expensive compared to the Starter. B2B buyers are human too — they anchor on the highest number in sight. Luna: Alright, I'm convinced. But let's talk about risks. If customers figure out the expensive option is a decoy, doesn't that erode trust? Lucas: It can, if the decoy is obviously fake. If you're a winery and your two-hundred-dollar bottle is actually the same juice as the forty-dollar bottle with a different label, you'll get caught. The Chateau effect works best when the premium option is real — it's genuinely higher quality, but priced at a level that makes it a poor value for most people. Luna: So the decoy has to be authentic. Lucas: It has to be a legitimate product that some small segment will buy. That way, the anchor feels credible. And there's a second risk: if you set the anchor too high, you can actually backfire. Ordabayeva's research found that when the premium option is more than five times the mid-tier price, consumers start to distrust the whole menu. They feel manipulated. Luna: So there's a sweet spot. What's the rule of thumb? Lucas: Based on her work, the premium option should be roughly two to three times the mid-tier price. In the wine example, the two-hundred-dollar bottle is five times the forty-dollar one, but wine is a status good where the anchor can be wider. For everyday products, stick to two to three times. Luna: And what about the opposite direction — a low-price decoy? Like a 'loss leader' that makes the mid-tier look expensive? Lucas: That's a different mechanism. That's the 'good-better-best' framework, where the low-price option is meant to capture price-sensitive buyers, not to anchor. The Chateau effect is specifically a high-price anchor. But you can combine them. Many subscription businesses use a three-tier stack: a cheap 'Basic' that's stripped down, a 'Pro' that's the target, and a 'Premium' that's the anchor. Basic and Premium both serve as decoys in different directions. Luna: So if I'm a small business owner listening right now, what's the one thing I should test this week? Lucas: Take your current pricing menu — whether it's three tiers or five — and add one higher-priced tier that's genuinely valuable but priced at roughly double your current highest tier. Don't expect it to sell. Track your conversion rate on the second-highest tier before and after. If you see a lift of even 10 to 15 percent, you've found your Chateau effect. Luna: And if the new tier does sell? Lucas: Then you've accidentally discovered a new market segment. That's a happy problem. Luna: Lucas, I have to ask — have you ever been the victim of the Chateau effect? Bought something you didn't plan to because of a decoy? Lucas: Absolutely. Last year I was buying a suit. The salesperson showed me a $1,200 option first, then a $600 one. I walked out with the $600 suit feeling like I'd saved $600. In reality, I'd walked in planning to spend $400. Luna: And you were aware of the tactic while it was happening? Lucas: I knew exactly what he was doing. It still worked. That's the power of the anchor — it's not rational, it's automatic. Luna: So the takeaway for marketers: don't bury your highest price. Feature it. Make it visible. Let it do the work of selling everything below it. Lucas: Exactly. And for consumers — next time you see a $200 bottle next to a $40 one, ask yourself: is the $40 bottle actually a good deal, or is it just a good deal compared to $200? Luna: That's a question worth sitting with. Thanks, Lucas. Lucas: Thanks, Luna. And thanks to everyone listening. Next time we'll look at something we haven't touched yet: how to price a subscription when your costs are unpredictable. Until then.