Partition Premium Pricing for Busy Shoppers

Your loyalty program participants will reach reward levels faster if you keep their focus on whichever is smaller in size—the percentage of the requirement they’ve already completed or the percentage they’ve yet to complete. This “small area effect” works with most things that require the consumer’s effort.
     Because paying money is a burden for shoppers, a small area effect is seen in pricing for upgrades to premium versions. Suppose that one retailer’s ad states $199.99 as the price for the standard version of a product and $259.99 for the premium version. Now suppose that another retailer also advertises $199.99 for the standard version, but then says in the ad, “For $60 more, you can purchase the premium version.”
     Which do you think is more likely to persuade shoppers to purchase the premium version?
     Researchers at University of British Columbia and Nanyang Technological University find that it’s the second version. Partitioning the upgrade cost makes it seem like a smaller expenditure because it’s a smaller number than the total price. Not surprisingly then, this works best with busy shoppers who don’t take the time to calculate and contemplate the total price.
     Since there’s a potential with this technique of tricking consumers, check that the premium version truly will be of benefit to this individual shopper. Then once you have verified the benefits, incorporate those into your selling. Partitioned pricing calls attention to each of the components for which a cost is stated, so state the additional cost in the format, “For only this dollar amount more, you’ll receive these specific additional benefits.”
     Generally, it is best to state that additional amount as a round dollar figure. So if the prices on the bin tags are $19.99 and $29.99, say, “For only $10 more, here are the additional features you’ll get.” The easy comparison facilitates acceptance of the offer. However, if your upselling includes more than one upgrade step, persuasion is more likely when you quote the actual price points rather than rounding and when you go into more detail in discussing the prices, such as talking about per unit costs or percentage differences. Researchers at Babson College and Baruch College found that with sequential upgrade offers, consumers perceive the differences in prices between the regular and premium versions to be smaller if the comparison is harder to compute than in a prior upgrade decision.

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Vary Velocity for Loyalty Program Motivation
Expect Exceptions to 99-Ending Pricing
Use Partitioned Pricing to Highlight Benefits
Detail Subsequent Upgrade Price Comparisons
Upgrade Your Upselling