Boundary PricingOpen Access

Boundary Pricing

We're more likely to upgrade if the base price feels closer

If you offer a range of differently-priced products, it's better to put your lowest price at or above rather than below a certain numerical boundary (e.g. $1.05 instead of $0.95). Doing so increases upgrades to the next most expensive item.

Kim, J., Malkoc, S. A., & Goodman, J. K. (2021). The Threshold-Crossing Effect: Just-Below Pricing Discourages Consumers to Upgrade. Journal of Consumer Research.

The study

Setup

Setup

378 people were were split into two groups and offered two coffees, small and large, with prices either $0.95 and $1.20 or $1 and $1.25.

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Results

Results

Results showed that people were 55.5% likely to upgrade to a large coffee when the small was $1 than when it was $0.95 (28.9%). Average coffee sale prices were also higher in the boundary condition ($1.14 vs $1.02).

Study graph
np_read_2490885_000000

Kim, J., Malkoc, S. A., & Goodman, J. K. (2021). The Threshold-Crossing Effect: Just-Below Pricing Discourages Consumers to Upgrade. Journal of Consumer Research.

Key Takeaways

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Offer upgrades? Use boundary pricing.

If you offer more than one product option at different prices, boundary pricing can help improve the rate of upgrades. This is because, next to a price set just below a boundary (e.g. $95), increasing a base price to just above ($105) makes the upgrade option ($135) appear cheaper and less of a painful step up. It's because of the way we encode numbers, chunking them into broader numerical categories to infer value. This increases willingness to upgrade and therefore spending.

Takeaway image
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Works with multiple upgrade options

As long as the prices all sit within the same price boundary, the effects persist for product ranges with more than two options, as was shown with further studies on purchases of apartments and cars, which both offered multiple upgrade options. Maximise upgrade range by setting your base price around a more round numerical amount (e.g $10,000 vs $11,000). This will allow you to offer upgrade options that sit within a broader, albeit the same price boundary ($10000-19000 vs $11000-11999).

Takeaway image
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Present options together, not sequentially

The effects of boundary pricing disappear when the options are shown separately (different screens / post-purchase), relying upon the user's memory in some way. Ensure that users can easily see the value of upgrading, by showing the base price next to the upgrade. Note that impact also reduces when the upgrade option sits in a higher boundary ($205) than the base ($105).

Takeaway image
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Takeaway image
Takeaway image
Boundary Pricing

Boundary Pricing

We're more likely to upgrade if the base price feels closer

If you offer a range of differently-priced products, it's better to put your lowest price at or above rather than below a certain numerical boundary (e.g. $1.05 instead of $0.95). Doing so increases upgrades to the next most expensive item.

The study

Setup

378 people were were split into two groups and offered two coffees, small and large, with prices either $0.95 and $1.20 or $1 and $1.25.

Results

Results showed that people were 55.5% likely to upgrade to a large coffee when the small was $1 than when it was $0.95 (28.9%). Average coffee sale prices were also higher in the boundary condition ($1.14 vs $1.02).

study graph
np_read_2490885_000000

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