Set Prices Above Round Numbers When Selling Upgrades

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.