Researchers have found that consumers are up to one-third more likely to pay for an upgrade when the extra cost is expressed as an add-on to the product’s original price, as opposed to a higher overall price.
“Imagine booking a plane ticket – comparing a ticket that is $200 when it involves a two-hour layover with a ticket to fly direct for $250. Put another way, a regular ticket is $200, but upgrading to a direct flight costs $50 more. Which option is more appealing?” asked David Hardisty, study co-author and assistant professor of marketing and behavioural science at UBC Sauder.
According to the abstract of the study, published in the Journal of Marketing Research:
“Four experiments supported by six supplemental studies show that premium but higher-priced products (e.g., direct flights, larger-capacity data storage devices) are more popular when the additional cost is made explicit using differential price framing (DPF; e.g., “for $20 more”) rather than being left implicit, as in standard inclusive price framing (IPF; e.g., “for $60 total”).”
The researchers say that the reason this occurs is because of lower perceived expensiveness.
“When you see ‘$50 more’ as an add-on price, it’s a smaller number than the total, and we focus on that smaller number,” said co-author Dale Griffin, professor and advisory council chair in consumer behaviour at UBC Sauder. “Mathematically, the prices are the same, and on consideration we can see that, but intuitively add-on prices just feel less expensive.”
The researchers observed this effect even when consumers were reminded of the final price of the product, suggesting that the shift in preference is not because of confusion or deception, but rather because of how consumers justify their purchase decisions.
However, not all consumers are susceptible to the add-on pricing effect.
”Individuals who are very careful and deliberate when making decisions naturally compare prices whether they are expressed as included or as add-ons,” said Hardisty.
Hardisty added, “Businesses typically earn higher margins on more expensive products, so it would be good for them to use the add-on price framing if they want to promote these kind of higher quality items.
“For the consumer, it’s good to be aware of how these different price frames influence you. Why are they doing that? And what effect is that having on me? Now we know.”
“When “More” Seems Like Less: Differential Price Framing Increases the Choice Share of Higher-Priced Options”
Thomas Allard, David J. Hardisty, Dale Griffin
Journal of Marketing Research
First Published July 11, 2019