Mrs Peacock and I recently spent a week at a five-star all-inclusive resort in Lanzarote. As the Managing Director of a B2B pricing consultancy, I noticed each of these principles at work, every one designed to make the holiday more enjoyable and the price feel more justified. This guide explains how each one works, with the academic sources behind them, and how the same levers apply to SaaS, subscription, retainer and bundled service pricing.
Why does an all-inclusive holiday feel like better value than half-board?
Because the half-board price acts as a reference point that anchors your judgement. When all-inclusive sits at £3,000 next to half-board at £2,400, your brain measures the £600 gap against the value of seven days of meals and drinks, which works out at roughly £85 per day. Most travellers would spend that much on lunch, dinner and drinks anyway, so the upgrade looks rational.
This effect is called anchoring. The half-board price is rarely the best deal on the page. It exists to give the all-inclusive number something favourable to be compared against.
What is the decoy effect in holiday pricing?
The decoy effect is a pricing technique in which a deliberately weaker option is added to a choice set to push buyers towards the option the seller actually wants them to choose. In the holiday market, the half-board package usually functions as the decoy. It is priced not to be chosen, but to make the all-inclusive look obviously better.
Behavioural economists call this asymmetric dominance [1]. It works because the brain prefers easy comparisons. Faced with a clearly weaker option, buyers spend less time evaluating absolute value and more time evaluating relative value, which is where the seller wants the decision to be made.
Why does last-minute discounting work so well in travel?
Last-minute discounts compress the price gap between options to the point where the more expensive option feels almost free.
In our case, a 10% late discount took the all-inclusive price from £3,000 to £2,700. The gap to the £2,400 half-board option narrowed from £600 to £300. At a £300 premium for seven days of food and drink, choosing anything other than all-inclusive feels almost irrational. The discount works less by reducing the price and more by re-anchoring the comparison.
Why does bundle pricing make customers value a product more?
Bundle pricing increases perceived value by reducing what researchers call “psychic costs”: the mental effort of anticipating extra fees and totting up running totals.
Research at upscale resorts has found that guests on all-inclusive bundles report around 20% higher perceived value than guests facing itemised charges [2]. A single bundled price is easier to evaluate than a list of components, and the cognitive ease itself becomes part of the value proposition. You are not just buying meals, drinks and entertainment. You are buying the absence of a spreadsheet.
Why do all-inclusive drinks feel “free” even though you’ve paid for them?
Because prepayment separates the moment of paying from the moment of consuming, removing the “pain of paying” that usually accompanies a purchase. Pricing researchers call this payment decoupling [3].
Every purchase carries a small psychological cost at the point of transaction, even when the buyer is happy with the deal. Prepayment removes that cost from each individual act of consumption, because the money has already been spent in the buyer’s head. The result is that the third drink of the day carries no cost penalty, even though the total amount paid is the same.
Experimental work has shown consumers will actually pay more for the privilege of prepaying than for the same holiday paid for afterwards.
How does loss aversion make “free” drinks feel even better?
Loss aversion is the principle that humans feel losses roughly twice as keenly as equivalent gains [4]. When you order a drink at an all-inclusive bar without paying, you are avoiding a small loss, and your brain registers that avoided loss as a psychological gain. The total cost of drinks across the week is the same as on a pay-as-you-go basis, but the experience is meaningfully better.
What is mental accounting and how does it apply to holidays?
Mental accounting is the theory that consumers track money in separate mental “accounts” tied to specific purposes, rather than treating all money as fungible [5]. When you book a holiday, you open a mental account for it. When you pay, the account closes.
By the time you arrive, the spending has already happened in your head. Each drink at the bar is not a new transaction but a withdrawal from an account that no longer feels like real money. This is why people happily order things on holiday they would never order at home, even though the same wallet is funding both.
Why is sunk cost an advantage in all-inclusive holidays?
Once you have paid for an all-inclusive holiday, the payment becomes a sunk cost: spent, irrecoverable, no longer in play. The pain of paying happens months before the pleasure of consuming. By the time the pleasure arrives, the pain is a fading memory.
This is deliberate hedonic engineering by the operator. Compare it with the alternative: a pay-as-you-go holiday leaves you with a credit card bill that lands weeks after you get home, prolonging the pain of paying long after the pleasure has ended.
What is the flat-rate bias?
The flat-rate bias is the consistent consumer preference for fixed-price options over pay-per-use options, even when pay-per-use would cost less [6]. It has been replicated across many studies and applies to mobile phone tariffs, gym memberships, broadband, and all-inclusive holidays.
Researchers have identified four distinct sub-effects that drive the bias.
| Effect | What it does | Why it matters |
| Insurance effect | Caps total spending | Removes anxiety about an open-ended bill |
| Taximeter effect | Switches off mental cost tracking | Removes psychological friction during consumption |
| Convenience effect | Eliminates admin | Reduces cognitive load |
| Overestimation effect | Buyers overestimate their usage | Makes flat rate feel better value than it is |
All four are working on you at an all-inclusive resort.
How does all-inclusive pricing eliminate decision fatigue?
By removing dozens of small daily decisions about cost. A pay-as-you-go holiday forces you to weigh every drink, every meal, every restaurant choice against its price. The all-inclusive removes those decisions entirely.
This is the part nobody puts on the brochure. You are not buying food and drink. You are buying permission to stop deciding. For seven days, the cognitive load of small financial trade-offs evaporates, and that, more than the food, is what makes the holiday feel like a proper holiday.
How do these pricing principles apply to B2B and SaaS?
All nine principles transfer directly to subscription pricing, usage-based pricing, prepaid credits, retainers and bundled service offers. If your customers commit upfront and consume later, you are already working with this psychology, whether you have designed for it or not.
| All-inclusive holiday | B2B equivalent |
| Half-board decoy | Lower-tier plan, deliberately limited |
| Late booking discount | End-of-quarter discount |
| Single bundled price | All-features-included subscription |
| Payment decoupling | Annual prepayment discount |
| Sunk cost / mental account | Once-a-year invoice paid by finance |
| Flat-rate bias | Unlimited-usage tier |
| Decision fatigue removal | “One simple price, everything included” |
The price tag is the easy bit. The experience designed around it does the real work.
Frequently asked questions
Are all-inclusive holidays actually cheaper than paying as you go?
Not always. The flat-rate bias means most buyers overestimate how much they would consume, so a significant proportion of all-inclusive customers pay more than they would on a pay-as-you-go basis. They are usually still happier with the experience, because the certainty and removal of decision-making is worth a premium.
Why do tour operators offer a half-board option at all if all-inclusive is more profitable?
The half-board option exists primarily as a decoy. Its purpose is to make the all-inclusive look like the obvious choice. A meaningful proportion of buyers still choose it, but the operator’s margin tends to be higher on all-inclusive.
Is the flat-rate bias dishonest?
No. The bias reflects real consumer preferences for certainty, simplicity and the elimination of decision-making. Charging a flat rate for a service customers value at flat-rate terms is not deceptive. It can become so if the flat rate is engineered specifically to extract surplus from buyers who would consume far less than the average.
Which is more important in pricing: the number or the structure around it?
The structure. Two products at the same price can produce very different willingness-to-pay and satisfaction levels depending on how the price is framed, anchored and decoupled from consumption. All-inclusive holidays are a case study in how structure does most of the heavy lifting.
Can I apply all-inclusive pricing logic to my SaaS or subscription business?
Yes. The principles of bundle pricing, payment decoupling, sunk cost engineering, flat-rate bias and decision-fatigue removal map directly to annual subscriptions, prepaid credits, unlimited-usage tiers and retainer-based services.
Who is the author of this article?
Mark Peacock is the Managing Director of PriceMaker, a B2B pricing consultancy offering pricing strategy and competitor pricing discovery services. PriceMaker helps businesses design pricing structures that work psychologically as well as commercially.
References
[1]: Huber, J., Payne, J.W. & Puto, C. (1982), “Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis”, Journal of Consumer Research.
[2]: Naylor, G. & Frank, K.E. (2001), “The effect of price bundling on consumer perceptions of value”, Journal of Services Marketing.
[3]: Prelec, D. & Loewenstein, G. (1998), “The Red and the Black: Mental Accounting of Savings and Debt”, Marketing Science.
[4]: Kahneman, D. & Tversky, A. (1979), “Prospect Theory: An Analysis of Decision under Risk”, Econometrica. Kahneman was awarded the Nobel Prize in Economics in 2002.
[5]: Thaler, R.H. (1985), “Mental Accounting and Consumer Choice”, Marketing Science. Thaler was awarded the Nobel Prize in Economics in 2017.
[6]: Lambrecht, A. & Skiera, B. (2006), “Paying Too Much and Being Happy About It: Existence, Causes, and Consequences of Tariff-Choice Biases”, Journal of Marketing Research.