As accountants, we're familiar with just-below pricing, where prices are set just below a round number (e.g., £39.95) to make them seem lower. However, this strategy may not be effective for encouraging upgrades.

When clients decide whether to upgrade from a basic service to a more comprehensive package, just-below pricing can make the upgrade seem more expensive, discouraging them. This is known as the threshold-crossing effect.

Can just-above pricing (pricing at or just above a threshold) encourage more upgrades and boost client spending?

Conceptual Background

Just-below pricing uses two key psychological effects:

• Lay Associations: Prices just below round numbers are seen as lower.

• Left-digit Effect: Consumers focus on the left-most digit, making $2.99 seem much cheaper than $3.00.

However, in upgrades, this can backfire. When the base price is just below a round number, upgrades seem more expensive, discouraging them.

This is the threshold-crossing effect. Pricing just above a round number can make upgrades seem cheaper, encouraging more upgrades.

Key Findings from the Studies

Study 1: Field Experiment

A coffee stand tested pricing at $0.95 (just-below) vs. $1.00 (at-threshold). The study found that more students upgraded to a larger size at $1.00 (55.56%) than at $0.95 (28.95%). Total revenue was higher at $1.00.

Study 2: Incentive-Compatible Choice

Participants chose between face mask packages priced at $9.95 (just-below) and $10.45 (just-above). Findings resulted in more upgrades at $10.45 (70.86%) than at $9.95 (60.14%). Higher average spending at $10.45.

Study 3: Multiple Upgrades

Participants chose upgrades for cars and apartments with prices just-below or just-above thresholds. This study resulted in higher upgrade rates and spending in the just-above condition for both categories.

Study 4: Price Perception

Participants rated the expensiveness of a blender upgrade with base prices at $39.99 (just-below) vs. $40.00 (just-above). Results showed that the upgrade was seen as less expensive and more preferred at $40.00.

Practical Implications

These findings offer actionable insights for owners of accounting firms:

• Pricing Strategies: Set base prices at or just above round numbers to encourage upgrades.

• Sales Optimization: Design pricing structures that leverage the threshold-crossing effect to boost consumer spending.

• Contextual Considerations: Be mindful of conditions that may reduce the effect, such as sequential presentation or additional upper thresholds.

Conclusion and Future Research

The studies consistently support the threshold-crossing effect, showing that just-above pricing can encourage more upgrades and increase client spending. This research enhances our understanding of behavioural pricing and offers practical insights for advising clients on upgrade decisions and pricing strategies.

Pro Tip

Leverage the threshold-crossing effect by setting your prices just above round numbers to encourage upgrades and maximize revenue.

FAQs

How does just-above pricing differ from just-below pricing?

Just-above pricing sets prices at or just above round numbers, while just-below pricing sets them just below round numbers. The former can encourage upgrades by reducing perceived price differences.

Can the threshold-crossing effect be applied in all industries?

Yes, the effect has shown robustness across various product categories, though managers should consider specific contextual factors.

What are some practical steps to implement just-above pricing?

Identify key price thresholds for your products, adjust base prices to just above these thresholds, and monitor consumer responses and upgrade rates.

If you found this valuable and would like to learn more about value pricing, I run a free live online training session every month with a topic chosen by you. Attend live and you can ask me any questions you have. Click here to register and I will send you an invitation to the next session.

Wishing you every success on your pricing journey

Mark Wickersham

Chartered Accountant, Public Speaker and Author of Amazon No.1 Best Seller “Effective Pricing for Accountants”