£100 a month or £1,200 a year? Why price framing makes a difference.


Which would you choose?

Maybe it is a little bit difficult because we aren’t mentioning anything about a service or product here. But which feels more appealing? 

Whichever option you picked, it cannot have been because of any tangible financial benefit. Both of the options are exactly the same. Maybe you noticed that already.

If you did feel that one option was more appealing than the other, it was only because they were framed differently.

One of the questions our clients frequently ask us is “How should we present our prices?”

Before we get to our recommendations, there is a lot of science exploring this question.

A study by Shankha Basu, from the University of Leeds and Sharon Ng,  from Nanyang Technological University explored the impact price framing has on customers with different goals across various industries.

Health Clubs

In one portion of their research, Basu and Ng focussed on how the presentation of pricing might influence consumer decision making. 

The payment terms for the health club membership were exactly the same. Only the presentation of the cost varied. 

Participants had two options when signing up for the health club:

Even though there is no difference between 1 and 2, more people preferred the costs presented in monthly terms ($65 p/m) than aggregate terms ($1,560 across two years).

Perhaps the concept of the total cost is overwhelming, but this is less daunting when considered in monthly terms. 

We know that total sums feel painful when we are paying, but what about when they are coming our way?

Lotteries and Job ads

Another experiment looked at describing a lottery reward as

Participants perceived the reward ii as more positive than i. 

This demonstrated, in theory, that people claim to see an aggregate (or total) reward as much more appealing than those (of the same value) presented in monthly terms.

What about in practice?

Participants were asked to declare their interest in a job. The remuneration for the jobs were presented either as an annual or monthly salary. It seems that we are drawn to the larger numbers because the job advert with the annual salary was more popular than the same advert with the salary in monthly terms.

Retain Monthly, Reward Yearly

At the start of this blog, I mentioned that we often get asked by clients “How should we present our prices?”

For businesses in the services industry, our answer is often “Retain Monthly, Reward Yearly.”

From the experiments above, we know that people do not like to think about costs in their totality. They do, however, appreciate the idea of their aggregate rewards.

Hypothetically, let’s say Ben, a Business Coach (who is purely fictional) is considering how to frame his prices.

Let’s also say that to retain Ben’s service, it will cost a client £750 a month for 12 months. 

Ben is also confident, because of his previous experience, that he will triple the investment of a new client. That’s £2,250. 

How would it feel for a potential client if Ben said “For just £750 a month, you will earn £27,000 over the next 12 months”?

Sources:

Basu, S. and Ng, S., 2020. $100 a month or $1,200 a year? Regulatory focus and the evaluation of temporally framed attributes. Journal of Consumer Psychology,.