Set Prices Above Round Numbers When Selling Upgrades
It feels easier to spend money when prices surpass a round number ($51.95).
Charm prices (e.g., $19.95) aren't always effective.
Pricing above a round number (e.g., $20.05) can influence customers to upgrade their purchase (Kim, Malkoc, & Goodman, 2022).
In a recent study, researchers sold coffee:
- Small Coffee: $0.95
- Large Coffee: $1.20
Customers preferred the small coffee because it seemed like a better deal.
But then researchers added $0.05 to each price:
- Small Coffee: $1.00
- Large Coffee: $1.25
In this new assortment, customers preferred the large coffee. Even though the large coffee was still $0.25 more expensive, it seemed like a better deal because both coffees were above $1.
Round numbers are thresholds that influence our spending.
Suppose that you see a $49.95 backpack. Your budget was $50, so you proceed to the checkout.
But hmm, the total (with tax) is now $51.95.
It’s only $2 more, right? So you still plan to buy it.
However, look closely: You’re now prepared to spend above $50. If you see a superior backpack for $65, you’re more likely to buy this upgraded version instead of the $49.95 backpack.
Once you pass a round number, like $50, new expenditures feel less distinguishable (and thus less painful).
That same effect could happen with:
- $500 flight
- $5,000 deposit
- $50,000 car
When you pass round prices, it feels easier to spend more money.
- 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.