Second Cheapest Syndrome

Ever order the second cheapest wine on the menu while dining out? Well, one in four diners do (in the UK, at least). In the marketing world, this is defined as a choice set effect with respect to reference pricing - using the cheapest bottle of wine as a standard of comparison against which the other wines are compared.

But did you know that the second cheapest bottle is usually the worst value?

“Restaurant owners will often price the wine they buy cheapest at wholesale as the second cheapest wine on the menu. Why? Because people generally don’t order the cheapest wine and thus often turn to the second cheapest. Price that one higher, and you get a bigger marginal profit. Presto — restauranteur as microeconomist!” (from an old Wall Street Journal article).