VANCOUVER, British Columbia — Consumers are bombarded with “premium options” at seemingly every turn. Regular or premium gas? Coach or first class? Many stores and companies entice consumers to spend more money by presenting these premium options as “add-ons” to their original price. For example, just before booking a trip online, many companies present consumers with the opportunity to upgrade their travel plan “for just X more dollars.”
Now, a study conducted at the University of British Columbia finds that shoppers are up to one-third more likely to spend more money for a premium option or upgrade if that extra cost is presented as an “add on,” as opposed to just a higher overall price. Of course, the final cost to our wallets is always going to be the same, but researchers say that this approach does indeed make a difference from a psychological perspective.
“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?” asks David Hardisty, study co-author and assistant professor of marketing and behavioural science at UBC Sauder, in a release.
According to the research team, most consumers probably aren’t even aware they are being influenced by this technique.
Hardisty would go on to say that, ultimately, this phenomenon can be traced back to dollars and cents. As a whole, $250 sounds like a lot of money, but a base price of $200 plus an extra $50 to upgrade doesn’t seem so pricey.
“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,” says co-author Dale Griffin, professor and advisory council chair in consumer behavior 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.”
Researchers observed this effect across a wide assortment of purchases, including buying a new computer monitor, ordering breakfast at a restaurant, and even when donating funds to a local food bank.
Even after reminding many patrons of the final, overall price of their purchase, the majority still went ahead with the upgrade. This indicates that consumers’ willingness to spend more on add-ons isn’t necessarily linked to outright deception, but rather due to how shoppers justify their own spending to themselves.
It’s worth noting, however, that this effect was only observed in regards to pricing, not product upgrades. For instance, a four-terabyte hard dive didn’t seem to be any more appealing to shoppers when presented as just “two terabytes more” than a two-terabyte hard drive.
Researchers also stressed that if you are a person who is meticulous about their spending habits and budgets, it’s unlikely you’ll be swayed by this strategy. “Individuals who are very careful and deliberate when making decisions naturally compare prices whether they are expressed as included or as add-ons,” Hardisty comments.
The research team says their findings should prove useful to both businesses offering premium services or items and consumers, albeit for different reasons.
“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,” Hardisty says. “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.”
The study is published in the Journal of Marketing Research.