The Murky Depths of Add-on Pricing

Attempting to drive prices higher with low initial prices and extensive add-ons really works - the first time.

All hail the researchers who do the grunt work to let us know how our pricing decisions affect real people.

In this case: Santana, S., Dallas, S. K., & Morwitz, V. G. (2020). Consumer reactions to drip pricing. Marketing Science, 39(1), 188-210. A great piece of research work if you want to go back to the basics.

The research shows that quoting a low price and then adding-in options after really works in terms of price enhancement for customers – but only in the short term. It shows that customers, whilst being increasingly aggrieved, don’t go back to the beginning of the process for three main reasons:

  1. Customers overestimate the effort it takes to start over. They assume it is too much work to go through the whole process again and that the different offers will probably all be equivalent. Simply put, they think the saving won’t be worth the effort.

  2. Customers underestimate the benefits of starting over. They discount the benefit of the learning they have gained from going through the process.

  3. And the strongest influencer, starting over means you have to admit you made a wrong decision. And this mistake makes customers feel pain and experience psychological grief.

So if you are the supplier, drip-pricing works every time (the first time) and increases short-term profitability.

However, the extremely high levels of dissatisfaction felt by the customer and the psychological discomfort are undoubtedly damaging to the long-term brand of the supplier. The consumer will never associate the dissatisfaction with their own errors or perceived laziness, but rather with the deceitful behaviour of the supplier.

They avoid the supplier in future wherever possible – not because of the higher price, but because of the discomfort they suffered in going through the process.

Pricing gem:

If you are a passionate drip pricer, your brand must reflect this or you will be labelled as untrustworthy.

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