By Larry and Adam Mogelonsky
All Omicron matters considered, this New Year’s Eve was still a time for going out and celebrating. As the time has passed, the lesson today is meant more as a resolution for the year ahead, with our hope that you will take the concept of ‘anchor pricing’ and figure out how to use it to optimize beverage sales for the entirety of 2022 and beyond.
A form of cognitive bias, anchoring is when a person is influenced or nudged towards a particular outcome or decision based upon a previously introduced point of reference. With applications throughout behavioral economics, the ‘pricing’ comes when applying this concept to all manner of purchasable goods.
As a foremost travel-related example, consider a two-part thought experiment. In the first part, subjects were asked to choose between an all-inclusive trip, four-night to Paris and an all-inclusive, four-night trip to Rome with both sold for a fictitious $999 total. Barring personal or nationalistic preferences for either city within any sample group, the results were more or less an even split.
Now for the second part, subjects were also asked to choose between those same two $999 Parisian and Roman vacations, but a third option – Rome a la carte priced at $499 – was thrown in. In this latter case, the overwhelmingly favored choice was the all-inclusive Rome trip. The rationale here is that the cheaper, a la carte alternative to the same city offered a reasonable comparison or ‘anchor’ through which to see the value of the more expensive Roman trip. Paris had no such analog and thus participants were less able to accurately assess the $999 cost to go to the French capital.
A more quotidian example would be your run-of-the-mill Starbucks coffee break where you must choose between a tall, grande and venti (excluding the trenta which is only really there for coffeeholics). Amongst these three options, the most commonly chosen size is the grande – the middle choice – because it is deemed the best value relative to both extremes.
Exporting this principle to your F&B, what should be apparent is that ordering matters. The first price that customers see will set the tone for the rest of the menu. Similarly, the more luxurious, conspicuous and expensive end of your wine list also matters insofar as determining the perceived value of all those possible choices in the middle. In other words, if you want people to pony up for a bottle of Dom Perignon to ring in the New Year, you may want to consider adding an even more prestigious sparkler in the adjacent space on the printout (or PDF) so that both bottles are immediately comparable against each other.
There are numerous other subtle and overt ways that anchor pricing can help you craft a beverage menu that optimizes what items guests select most frequently. For now, mull over this anchor pricing as a hypothetical exercise, and please go ahead and do some more background research to cement the theory in your mind. As a closing exercise, now cognizant of this concept, would you make or backtest any adjustments to your current offerings to tweak sales?