Just below pricing, like $19.99 or $4,999, where you price your product to avoid the left digit ticking over to a higher number, is a well known technique to enhance willingness to buy.
But it can stifle people’s willingness to upgrade.
That’s because an upsell requires them to break a psychological pricing threshold, which is what researchers found when they ran a series of seven experiments.
In one study, they sold two sizes of coffee, small and large, at a university campus coffee stand.
- In the just-below condition, small was $0.95 and large only 25 cents more ($1.20).
- In the at-threshold condition, small was $1.00 and large again only 25 cents more ($1.25).
People were more likely to upgrade to the large coffee when the base price was set at-threshold ($1.00, 55.56%) compared to when the base price was set just-below a threshold ($0.95, 28.95%).
According to the researchers:
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They sold more of the large coffee when it was objectively more expensive ($1.25 vs. $1.20);
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This resulted in higher overall revenue and sales; and
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Upgrades are seen as less expensive when both options fall on the same side of a pricing threshold.
Combining this insights with others, if you want people to upgrade:
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Your lower price needs to have the same left digit (i.e. same threshold);
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If it doesn’t, focus less on the upgrade’s total price, and more on the differential (e.g. Rather than promote $4,999 vs $5,299, promote that it’s only $300 to upgrade).
This might help, too. It’s my video on how to price different options.
Refs:
- Junha Kim & Selin A Malkoc & Joseph K Goodman, 2022. "The Threshold-Crossing Effect: Just-Below Pricing Discourages Consumers to Upgrade [The Influence of Prior Beliefs, Frequency Cues, and Magnitude Cues on Consumers' Perceptions of Comparative Price," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 48(6), pages 1096-1112.
- Allard, T., Hardisty, D. J., & Griffin, D. (2019). When “More” Seems Like Less: Differential Price Framing Increases the Choice Share of Higher-Priced Options. Journal of Marketing Research, 56(5), 826-841. https://doi.org/10.1177/0022243719851490 (Original work published 2019)
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