The effects of pricing strategy on upgrade intentions

Abstract

PurposeTaking a mental accounting theory perspective, this study explores how pricing strategy (all-inclusive vs partitioned) influences consumers' perceived residual value of a product and their subsequent intentions to upgrade to a newer model.Design/methodology/approachA pilot study and two formal experiments were conducted to test the hypotheses.FindingsA partitioned (vs all-inclusive) price causes consumers to later recall a lower total cost and perceive lower residual value for the existing product, thereby increasing upgrade intentions. This finding holds for both utilitarian and hedonic products. Perceived residual value mediates the impact of the pricing strategy on upgrade intentions. The pricing strategy effect is stronger for state-oriented individuals than for action-oriented individuals.Originality/valueThis study extends understanding of the impact of pricing strategies from consumers' short-term immediate demand to long-term upgrade intentions. It also identifies a previously uninvestigated moderator (action-state orientation), clarifying the boundary conditions of pricing strategy effects. The study's conceptual framework links pricing strategy, sunk costs, perceived residual value and upgrade intentions, providing rich insights and potential research paths. These findings further enhance understanding of upgrade intentions.