Imagine you are selling a basic product or service that also comes with an upgrade option:
- Coffee that is served in an 8oz cup can be upgraded to 12oz,
- a ticket for a basic train service versus a highspeed, premium service, or
- a 24-inch monitor versus a larger 27-inch model.
Let us stay with the monitor example: the 24-inch version comes at $199.99, and the 27-inch premium model is priced at $259.99. The question is, how do you communicate the price of the premium version?
Do you state the absolute price ($259.99), or should you present the price difference ($60 more)?
What would you do?
Researchers found that framing the price of the premium version as the price difference is always superior to the absolute frame.
In all studies, consumers were more likely to buy the premium version when the price difference was presented.
In the "monitor study," 42% of consumers would choose the premium model when only the absolute price was present, but 58% – this means 38% more participants – decided on the premium model when the price difference was shown.
Presenting the price difference of the premium version improves up-selling probabilities (compared to absolute price only) even
- when the price difference is presented in addition to the absolute price of the premium version,
- the premium version is regarded as a bad deal (given the price/quality difference compared to the standard version) and
- when the price difference is higher than the price of the standard version (e.g., standard price $30, premium price $70: $40 more).
To promote upgrades, present the price difference between both options.
Now I have a bonus question: You decided to show absolute prices for the basic and the upgraded version. How should you design the prices?
When people have to cross a price threshold moving from the basic to the upgraded version, people perceive the price difference as much larger and are less likely to choose the upgrade.
When the price for coffee had the same absolute price difference (25 Cents), but the customer had to cross a price threshold of $1.00, only 29% of customers bought the larger cup.
When the price actually increased by 5 Cents and customers did not have to cross the price threshold anymore, the share of upgrades rose by 93% to 56%.
When setting prices for basic and upgrade options, do not cross a price threshold.
References
Thomas Allard, Hardisty, David J., Griffin, Dale (2019). When 'More' Seems Like Less: Differential Price Framing Increases the Choice Share of Higher-Priced Option. Journal of Marketing Research, 56(5), 826-841.
Kim, J., Malkoc, S. A., & Goodman, J. K. (2022). The Threshold-Crossing Effect: Just-Below Pricing Discourages Consumers to Upgrade. Journal of Consumer Research, 48(6), 1096-1112.