Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a $79 Wine Anchor Makes You Buy the $35 Bottle
Transcript
- Lucas: If a restaurant puts a $79 bottle of wine on their list, they probably expect to sell maybe one of them a week. That bottle isn't there to move inventory. It's there to make the $35 bottle next to it look like a smart, responsible choice. Luna: Right — the classic anchor. But there's a specific mechanism at play here that goes beyond just a high number. It's called the compromise effect. Lucas: Exactly. And it's one of the most reliable pricing tactics in the playbook. The compromise effect says that when people face three options — cheap, mid, and expensive — they tend to avoid the extremes and pick the middle one. It feels safe. It feels like you're not being cheap and you're not being wasteful. Luna: And the expensive option's job is to make the middle one look like a compromise. So the $79 bottle isn't a decoy in the strict sense — it's more of a reference point that changes how you perceive the $35 bottle. Lucas: Yeah, and if today's conversation sparks something you've actually used in your own pricing, the way these episodes stay ad-free is listener support. If you've gotten value from the show, you can buy me a coffee dot com slash fexingo. That's all lowercase — buy me a coffee dot com slash fexingo. It's a small way to keep this independent and free. Luna: Yeah, it really helps. And honestly, knowing listeners find it useful is the best part. Alright — let's dig into the mechanics of the compromise effect. Lucas: So there's a famous study from the early 90s by Itamar Simonson, a researcher at Berkeley. He set up an experiment with microwave ovens. People saw either two options — a $110 model and a $180 model — or three options: those two plus a high-end $200 model. Luna: And what happened? Lucas: When people saw just the two, they split roughly 50-50. When the $200 model was added, the share of people choosing the $180 model jumped to more than 70 percent. The $200 option made the $180 one look like the reasonable middle ground. Luna: So the expensive option didn't sell much, but it shifted preferences toward the next one down. That's exactly how the $79 wine works. Lucas: Right. And this isn't just restaurants. Think about how car dealerships present trim levels. They'll show you the base model at $28,000, the mid-tier at $34,000, and the fully loaded at $42,000. The fully loaded one is rarely the best seller, but its presence makes the $34,000 one feel like the practical choice. Luna: And if they removed the $42,000 option, suddenly the $34,000 becomes the expensive option, and more people might drop down to the base. So the high trim is protecting the mid-trim's market share. Lucas: Exactly. It's a classic finding in behavioral economics. And this applies to SaaS pricing too. You've seen the three-column pricing page — Basic, Pro, Enterprise. Often the Enterprise tier is priced way out of reach for most customers. But its role is to make Pro look like the sweet spot. Luna: And a lot of companies deliberately price Enterprise as 'call us' to create even more ambiguity. The lack of a clear number makes the Pro tier feel even more concrete. Lucas: Yeah, but there's a subtlety. The compromise effect works best when the price differences are roughly proportional. If the cheapest is $10, the middle is $15, and the expensive is $100, the jump is too big. People might reject the expensive as an outlier and still pick the cheap one. The anchor needs to be credible. Luna: So the $79 wine works because it's on the same list as the $35 bottle — it's not a $200 bottle next to a $35 one. The context has to feel coherent. Lucas: Right. And the really interesting thing is that you can use the compromise effect even if you only sell one product — by creating an artificial higher tier. I've seen coffee shops add a 'large' size that's only 10 cents more than the medium but a dollar more than the small. The medium becomes the obvious choice. Luna: And that's why Starbucks' tall, grande, venti pricing works. The venti is expensive enough to anchor, but grande feels like the Goldilocks zone. Lucas: Exactly. Let's talk about one more wrinkle — the 'asymmetric dominance' effect, which is related but slightly different. That's when you add a decoy option that is worse on one dimension than the target, making the target look superior. The classic example is The Economist's subscription offer from Dan Ariely's book. Luna: Oh, the web-only for $59, print-only for $125, and print plus web for $125? Lucas: That's the one. The print-only option is dominated by the print plus web — same price but less value. So almost nobody picks it, but its presence makes the combo look like a no-brainer. That's a decoy, not just an anchor. But the principle is similar: you use an extreme option to steer choice. Luna: So the key difference is: a pure anchor just sets a high reference point, while a decoy is designed to be inferior on purpose. The compromise effect sits somewhere in between — the expensive option is not inferior, it's just extreme. Lucas: Yes. And for a practical takeaway, if you're pricing a product or service, test adding a premium tier that's about 40 to 60 percent higher than your current mid-tier. See if it shifts sales toward the middle. You might find that the highest tier doesn't sell, but it pays for itself by lifting your second-tier conversion. Luna: And you can test this with a simple A/B test on a pricing page. Half the visitors see two tiers, half see three. If the three-tier version has higher overall revenue, you've got your answer. Lucas: Exactly. And the beauty is that the premium tier can be almost costless to create — it's just a line on a page. You don't even have to stock a $79 bottle of wine. You just have to list it. Luna: One caveat though — if your brand is built on being the affordable option, adding a premium tier might confuse customers. The compromise effect works best when you're already in a mid-market position. Lucas: That's a good point. If you're Dollar Shave Club, adding a 'platinum' razor at $50 might undermine your core message. So the anchor has to feel like a natural extension of the line, not a gimmick. Luna: And I think that's the big lesson from today. The $79 wine isn't there to be bought — it's there to be compared against. And once you see it, you'll notice it everywhere. Lucas: Yeah, I'd love to hear from listeners — have you spotted a compromise effect in the wild that changed how you thought about a purchase? We can't respond individually, but it feeds our thinking for future episodes. Luna: And if today sparked something, you know where to find us. Otherwise, we'll see you next time. Lucas: Take care, everyone.