Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a Single Premium Price Makes Your Whole Menu Sell Better
Transcript
- Lucas: So Luna, I was at this steakhouse last week, and the menu had a hundred and twenty dollar dry-aged tomahawk. I didn't order it. But I did order the forty five dollar ribeye, and I felt like I'd gotten away with something. Luna: Right, that's the classic premium decoy at work. That expensive steak wasn't there for you to buy. It was there to make the ribeye look like a deal. Lucas: Exactly. And this isn't some new-age growth hack. It's been studied for decades. The most famous example is the Williams-Sonoma breadmaker in the early nineties. They introduced a machine for two hundred seventy nine dollars, and it didn't sell. Then they added a second, bigger one for four hundred twenty nine dollars, and guess what? The two seventy nine version started selling like crazy. Luna: So the expensive one made the cheaper one seem reasonable. But what if the expensive one wasn't even meant to sell? Lucas: That's the thing. Marketers call it the decoy effect, or asymmetric dominance. The high-priced option isn't a real contender. It's there to shift your reference point. Once you see four hundred twenty nine, two seventy nine feels like a compromise, not a splurge. Luna: But is it always that simple? I mean, what if you remove the premium option? Does everything just fall apart? Lucas: In many cases, yes. There's a famous experiment with a subscription service. They had a web-only plan for fifty nine a year, and a print plus web plan for a hundred twenty five. Most people chose the cheap one. But when they added a third tier, print only for a hundred twenty five, suddenly the hundred twenty five print plus web became the most popular. The premium option made the middle one look like a no-brainer. Luna: So the expensive options aren't really decoys, they're more like anchors. They set the range of what feels normal. Lucas: Right, and there's a specific name for that range. It's called the 'range of acceptable prices.' You have a lower bound and an upper bound, and you're comfortable paying anywhere in between. A premium item stretches the upper bound, which makes everything below it feel more acceptable. Luna: So if you're a small business, do you need a premium product just to sell your mid-tier? That seems a little risky. Lucas: Not necessarily a product. It could be a service tier, a bundle, even a single high-priced SKU that you don't expect to move. The key is that it needs to be credible, not absurd. If you sell used cars and list a Ferrari at a million dollars, that doesn't anchor anything. But a loaded model at thirty percent above your standard trim? That can work. Luna: What about restaurants? I mean, the steakhouse menu is one thing, but they also have that hundred dollar bottle of wine that no one buys. Lucas: That's a perfect example. Wine lists are built on this. Restaurateurs know the second cheapest bottle often sells best, but they still list a few ultra-premium bottles. Those don't just anchor the price. They anchor the story. They make the whole list feel curated, exclusive. You're not just picking a wine. You're picking a wine within a context of luxury. Luna: So it's not just about numbers. It's about the narrative around the product. Lucas: Exactly. And this is why removing your premium option can backfire. If you strip away that high-end tier because it's not selling, you don't just lose that revenue. You lose the anchor that makes your mid-tier feel valuable. Suddenly the mid-tier becomes the top, and it feels expensive by comparison. Luna: I remember reading about a software company that did exactly that. They had a basic plan, a pro plan, and an enterprise plan. The enterprise plan was priced so high that hardly anyone bought it. But when they removed it to simplify their offering, sales of the pro plan dropped. People didn't have a reference point anymore. Lucas: That's a classic. And it's a cautionary tale for anyone who thinks pricing tiers are just about selling each tier in isolation. They're a system. The top tier's job is often to make the middle tier feel like a smart choice, not to generate direct revenue. Luna: So what's the takeaway for a small business owner listening? How do you actually implement this without feeling manipulative? Lucas: First, understand that this isn't manipulation. It's about giving people a frame of reference. You're helping them understand the value of what you're offering by showing them the spectrum. As long as the premium option is genuine and priced fairly for what it offers, it's a legitimate pricing strategy. Luna: But what if your premium option is just a token? Like, you have no intention of ever selling it? Lucas: Then you're walking a fine line. If it's a real product with real costs, it's fine. But if it's a ghost tier, you risk eroding trust. Customers can sniff that out. The best premium options are ones you'd actually be happy to sell, even if they're not your main mover. Luna: So it's not about tricking people, it's about presenting a complete picture. Lucas: Exactly. And that's part of the broader principle of price anchoring. We've talked about how a starting at price can anchor your add-on spending, or how a crossed-out price boosts your purchase decision. But the premium decoy is unique because it's about the product line as a whole, not just a single transaction. Luna: I'm thinking of Apple's MacBook Pro lineup. The top-end model with all the upgrades can cost over five thousand dollars. But most people buy the base or mid-tier, and they feel good about it because the top one exists. Lucas: Right, and Apple isn't naive about that. They know the premium configurator is part of the sales psychology. It makes the two thousand dollar model feel like a reasonable middle ground. And it's not just tech. You see it in cars, in hotels, in subscription boxes. Anywhere there's a range of options, the top price shapes what you're willing to pay. Luna: So if you're launching a new product line, should you always have a premium tier? Lucas: I'd say it's a strong default, but it depends on your category and your brand. If you're a discount retailer, a premium tier might feel out of place. But even discount stores have a 'better' version of things. The key is to make sure the premium option is relative to your brand, not an outlier. Luna: What about services? Like a consultant who only offers one package. Can they use this? Lucas: Absolutely. A consultant can offer a basic package, a standard package, and a platinum package. The platinum might be twice the price and include extra strategy sessions. Even if it rarely sells, it makes the standard package look like a smarter investment. And if a client does buy platinum, great, that's high margin. Luna: So it's a win-win. Either you sell the premium at a higher margin, or you sell the mid-tier more effectively. Lucas: Right. And that's the beauty of it. It's not a zero-sum game. The premium tier isn't stealing sales from the mid-tier. It's actually creating them. It's lifting the entire range of what people consider acceptable. Luna: I've also seen this work in B2B software. You have a basic plan, a popular plan, and an enterprise plan with no published price. That 'contact us' can act as a premium anchor, even without a number. Lucas: That's a great point. The enterprise plan doesn't need a price tag to anchor. The sheer existence of it, with custom features and dedicated support, sets a high reference point. And it also signals that the company serves big clients, which adds credibility to the whole product. Luna: So the premium option isn't just a price anchor. It's a brand anchor too. Lucas: Exactly. It positions you in the market. And that's why you have to be careful about using it. If you're a budget brand, a premium tier might confuse your audience. But if you're a quality brand, it reinforces your positioning. It's a tool, not a magic bullet. Luna: We've talked about the wine list, the breadmaker, software tiers. I'm thinking of hotels. You have the standard room, the suite, and the presidential suite. The presidential suite might be ten times the price of a standard room. But it makes the suite look like a bargain. Lucas: Perfect example. And hotels know that the presidential suite is rarely booked, but it's always listed. It's the ultimate premium decoy. It makes the executive suite, which is maybe three times the standard room, feel like a reasonable upgrade. Luna: So if you're a hotel owner, you'd never remove the presidential suite, even if it's empty most nights. Lucas: Right. And the same logic applies to any business. Before you cut a product line because it's not selling, ask yourself: is it anchoring something else? Is it making the rest of your menu look better? Sometimes the most valuable product you have is the one that never leaves the shelf. Luna: That's a great way to put it. And it makes me think of the way you approach this podcast. You know, we talk a lot about pricing psychology and marketing tactics, but we never try to sell our listeners anything. We keep it ad-free, and that's a deliberate choice. If these conversations have sparked something you've actually used in your own work, and you'd like to support that, you can find us at buy me a coffee dot com slash fexingo. It's a simple way to keep this going without any corporate sponsors. Lucas: Yeah, that's exactly right. We're not selling anything, we're just sharing what we know. And listener support is what keeps it that way. Luna: Alright, back to pricing. So what are some real-world examples of the premium decoy failing? Lucas: I think it fails when it's too extreme. If the premium price is so high that it's laughable, it doesn't anchor, it repels. It makes people question the brand's judgment. A hundred dollar bottle of water on a menu might not make the fifty dollar wine look good. It might just make the whole place seem ridiculous. Luna: So there's a sweet spot. The premium has to be credible. Lucas: Exactly. It has to be within the realm of possibility for your brand. And it also has to be a genuine product, not a fake tier. If someone does buy it, you need to deliver on it. Otherwise you're setting yourself up for a bad review and a lost customer. Luna: So what's the one thing you want our listeners to remember from this episode? Lucas: That your highest price is doing a job even when it's not selling. It's setting the stage for every other price you offer. So before you ever remove a premium option, think about what it's anchoring. You might be cutting more than just a product. You might be cutting your entire price perception.