Say we have two products of the same type – a TV for a simple example. One has a medium screen with basic sound, the second a larger screen with surround sound. For the purposes of the article let us call them the Good TV and the Best TV.
Good TV is £175 and Best TV is £250 (I know, a bargain in anyone’s books!)
Do we just show them with their features and the price alongside each other? Or do we say that Good TV is £175 and Best TV is £75 more?
The effect is startling. According to research conducted over an extended period: Kim, J., Malkoc, S. A., & Goodman, J. K. (2022) in the Journal of Consumer Research, 30% more Best TVs would be purchased if we use the depiction of the difference in price versus absolute price.
We do not know, but we can conjecture, that replacing the absolute high price (£250) with just the lower difference number (£75) impacts the consumer’s willingness to pay – or their understanding of their ability to pay.
There is a caveat though: if the increase from one product to another crosses a particular psychological threshold, so for example if the difference moves from under £100 to over £100, then the willingness to trade up at all is seriously compromised.
It is important therefore when designing pricing across a range to consider not only the absolute price for an item but also pricing differentials across that range, even when only one item will be bought – after all few people will purchase two TVs at the same time!
Pricing gem:
Show the difference in price between standard and upgrade products and not the absolute price if you are showing them together. Watch that the difference does not cross psychological thresholds though.
