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New Year’s Eve And A Lesson In Anchor Pricing For Hoteliers

By Larry and Adam Mogelonsky | December 21, 2021

All COVID-19 matters considered, New Year’s Eve and the days preceding it are still a time for exuberance. Undoubtedly, you’ve already given this some thought in terms of how to maximize occupancies before this holiday stretch, as well as how to get the most total revenue per guest (TRevPAR as it’s known). This will therefore require a solid beverage strategy.

From holiday seasons past you know how to craft a special drinks menu and to stock some extra champagne for the occasion; inspiration on this front is just a Google search away. Instead, we want to touch upon the concept of anchor pricing and how you can use it to optimize your beverage sales, not only for the few days leading up to the New Year, but also as a lesson to carry through for all of 2022.

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-nights in 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, it may be too late to modify the holiday season menu, so mull over anchor pricing as a hypothetical exercise. That is, now cognizant of this concept, would you make any adjustments to your offerings to tweak sales? Next, how might you apply this concept for all of 2022?

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Credit
Larry and Adam Mogelonsky

Together, Adam and Larry Mogelonsky represent the world’s most published writing teams in hospitality, with over a decade’s worth of material online. As the partners of Hotel Mogel Consulting Ltd. a Toronto-based consulting practice, Larry focuses on hotel strategies and operations while Adam specializes in wellness planning, technology and marketing. Their experience encompasses properties worldwide, with a primary focus on luxury independent properties. Their work includes seven books “Are You an Ostrich or a Llama?” (2012), “Llamas Rule” (2013), “Hotel Llama” (2015), “The Llama is Inn” (2017), “The Hotel Mogel” (2018), “More Hotel Mogel” (2020), and “In Vino Veritas” (2022). You can reach them at adam@hotelmogel.com to discuss how they can help with business challenges.


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