Under a popular marketing strategy, managers use prices just below a round number—like $9.99, $79.95, and $399,990—because consumers tend to perceive items to be less expensive than if they were a few cents or dollars higher. New research finds an important exception: If you’re seeking to upsell customers, setting the price of the basic option at or just above a round number gets better results.
The researchers set up a coffee stand on a college campus and varied the prices of a small and a large coffee over the course of two days. Some passersby saw a base price of $.95 and $1.20 for the upgrade, while others saw prices of $1.00 and $1.25. Just 29% of purchasers who saw the first set of prices bought the large coffee, versus 56% of those who saw the second set.
Six lab experiments with products including blenders, cars, and streaming services found similar results. “Pricing a base product just below…a round number separates the base product and upgrade options into different mental categories,” the researchers write, “making the upgrade feel more expensive.” Even when the upgrade was more expensive—for example, when the choice was between a basic and a deluxe blender priced respectively at $39.99 and $47.50 and at $40.00 and $48.50—participants presented with the latter set of prices were more likely than the others to spring for the deluxe model. The effect was lessened when products were presented sequentially rather than simultaneously (forcing people to rely on memory) and when the upgrade crossed another threshold (as when, say, the basic option was $20.50 and the fancy version was $30.50). So managers should avoid pushing the price of a superior product version above the next-highest round number, the researchers say. “Pricing an upgrade option just above another…threshold also creates a psychological barrier that will discourage consumers to upgrade,” they write.
ABOUT THE RESEARCH “The Threshold-Crossing Effect: Just-Below Pricing Discourages Consumers to Upgrade,” by Junha Kim, Selin A. Malkoc, and Joseph K. Goodman (Journal of Consumer Research, 2022) ■