Study finds shoppers more likely to shell out for premium option when extra cost is 'add-on'.
Washington: A recent study has found that shoppers are up to one-third more willing to pay for upgrades when the extra cost is expressed as an add-on in contrast to a higher overall price.
According to the study published in the 'Journal of Marketing Research', consumers could benefit from this research by being more aware of how pricing may influence their shopping decisions.
"Imagine booking a plane ticket - comparing a ticket that is USD 200 when it involves a two-hour layover with a ticket to fly direct for USD 250. Put another way, a regular ticket is USD 200, but upgrading to a direct flight costs USD 50 more. Which option is more appealing?" asked David Hardisty, study co-author and assistant professor of marketing and behavioural science at the University of British Columbia's (UBC) Sauder.
The answer boils down to dollars and cents, said Hardisty. Consumers perceive USD 250 as expensive because the number is higher than the base price of USD 200, whereas USD 50 as an add-on price seems inexpensive.
"When you see 'USD 50 more' as an add-on price, it's a smaller number than the total, and we focus on that smaller number," said co-author Dale Griffin, professor, and advisory council chair in consumer behaviour at the UBC Sauder.
"Mathematically, the prices are the same, and on consideration, we can see that, but intuitively add-on prices just feel less expensive," said Griffin.
The researchers found this effect applied whether participants were being asked to donate to a local food bank, buy a computer monitor, choose an external hard drive or even order breakfast.
They also observed this effect when reminding consumers of the final price of their purchase, suggesting that the shift in preference does not occur because of deception or confusion, but rather because of how people justify their purchase decisions.
However, the effect only occurs with pricing, not with other kinds of product upgrades. For example, if shoppers are looking at a two-terabyte hard drive, a four-terabyte hard drive is no more appealing than one that is presented as "two terabytes more."
But not everyone is susceptible to the add-on pricing effect. "Individuals who are very careful and deliberate when making decisions naturally compare prices whether they are expressed as included or as add-ons," Hardisty said.
The information could prove invaluable to retailers and other businesses who provide 'premium' products and services -- while also benefiting consumers the next time they're offered an add-on price.