One of the best practical pricing lessons from my B-school days was because of some fine wine!

A team of 6 B-school grad students was working with a high-end restaurant that sold a lot of wine. 

The team was doing a statistical analysis of the prices of various wine bottles that the restaurant sold, when one student noted a major anomaly. 

Typically, restaurants sold more bottles of wine when they promoted it with a discount, or when they reduced the price. 

However, this particular restaurant seemed to generate more sales of wines when their prices were increased. 

Confused, the student approached the owner and asked him why this strange consumption was happening.

The owner chuckled and took all the students to the cellar where the wines were stored. 

“The cheapest wines that we sell are around $20 per bottle, while a few go for a couple of hundred dollars. Every weekend, I come and check which cheap wines are bought the least. I then change the pricing on the label from $20 to $200, and watch the wines flowing and the registers ringing.”

The student was still stumped when the owner continued.

“People come to my restaurant to enjoy their evenings and celebrate their achievements. They ask the waiter for the best wines and assume that the priciest might also be the best.”

“So, in reality, they are paying $200 for $20 wine?”, the student asked.

“No, they are paying $200 to wash down a great evening. There is a huge difference.”