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Ali Kidwai
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Editor's Note: In this blog, we dive into the psychology of odd-even pricing strategy, a powerful tool that influences consumer choices and boosts sales. With real-world examples from brands like Starbucks and Louis Vuitton, we illustrate how this pricing approach can shape perceptions and enhance brand positioning. Take a dig!
In our previous blog, “Pricing Analytics in Action”, we delved into the transformative power of pricing where we explored various pricing strategies, models, and real-world applications that help businesses boost profitability while maintaining customer loyalty.
It's been a while since then, and we've decided to delve deeper into a whole new dedicated article on - Odd-Even Pricing. In this latest piece, we'll thoroughly examine the ins and outs of the odd-even pricing method, shed light on its psychology, provide Odd/Even Pricing examples, and assess its effectiveness in practice.
"By strategically employing odd and even pricing, you can align with consumer expectations and enhance your brand's market positioning. Tailor your approach to match your product's value proposition and market dynamics for optimal results."
Odd and even pricing is a widespread psychological marketing technique that includes pricing items with an odd or even ending, like $0.99 or $1.00. Depending on the clientele and commodity, customers perceive certain price endings as more attractive.
The effectiveness of odd-even pricing varies significantly across industries and sales channels. In evident pricing environments, such as e-commerce platforms, well-crafted odd-even pricing strategies can substantially impact consumer decisions. On the other hand, the more purchasing alternatives (substitutes) available, the less relevant odd and even pricing becomes as rationality in purchasing decisions usually increases.
Let's make the difference between odd pricing and even pricing clear.
| Odd pricing, such as $9.99, taps into psychological perceptions, making products seem more affordable and driving impulse buys. It's ideal for promotions and everyday items where cost-consciousness is critical. | Even pricing, like $10.00 or $20.00, conveys a sense of simplicity and premium quality, often suited for higher-end products or when building brand prestige. |
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Have you noticed why prices often end in $99, $199, $299, and so on, instead of $100, $200, or $300? Let's decode this!
Odd even pricing leverages psychological triggers such as the Left-digit Effect, Image effect, and Perceived gain effect by tapping into a customer's psyche. Various factors can influence this perception, including cultural associations, past experiences, and cognitive biases.
Quite frankly, implementing psychological pricing strategies needs an in-depth know-how of the target market and the specific dynamics of the product category. When executed well, these strategies boost sales and enhance customer satisfaction by aligning price perceptions with value.
Let's dive into the sneaky psychology of pricing and see how marketers use these tag tricks to captivate the audience. Buckle up, folks—
| Strategy | Description | Example | Effects on Consumers |
|---|---|---|---|
| Charm Pricing | Price ending with $.99 make items seems cheaper | $19.99 instead of $20.00 | Feels like a bargain |
| Anchoring Effect | Initial high price sets a reference point for discounts | Was $100, now $75 | Makes the discount seem more significant |
| Decoy Pricing | An overpriced option makes the middle option seem more reasonable. | Basic $5, standard $10, premium $12 | Encourages choice of the higher-priced option |
| Price Perception | Higher prices are associated with higher quality | $200 Shoes Vs $50 Shoes | Perceived as more valuable |
| Odd-Even Pricing | Odd numbers suggest deal, even numbers suggest reliability | $7.97 Vs $50.00 | Odd = Bargain, Even = Quality |
| Bundle Pricing | Multiple items sold together at a lower price per item | 3 for $10 | Feels like a better value |
| The Power of FREE | Offering something for free can increase perceived value | Buy one, get one free | Feels like a gift, and boosts appeal |
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Let’s understand this way - Six items were evaluated in one experiment to determine if odd price endings could increase sales. Each product experienced a rise in demand, but the Effect was notably more pronounced for lower-priced goods such as cheese, chicken, and chocolate.
Several researchers have explored the underlying psychology behind this pricing strategy. One theory suggests that the Anchoring Heuristic plays a role. Consumers may anchor on the first digit of the price, leading them to perceive the overall cost as lower.
Further studies have specifically examined the impact of prices ending in "9." These investigations have shown that such pricing can evoke positive emotions in customers, increasing their likelihood of purchasing. Interestingly, this effect is maximized when these odd-ending prices are presented alongside positive marketing messages.
| Pros | Cons |
|---|---|
| Encourages impulsive shopping | Misleading Impression |
| Increased Sales | Potential Margin Impact |
| Flexibility in Pricing Strategy | Reduced Lifetime Value (LTV) |
| Competitive Advantage | Wrong sense of value |
| Alignment with Consumer Expectations | Negative Brand Perception |
| Effective for Promotions and Discounts | Market Saturation Risks |
"McKinsey found that pricing is by far the biggest tool for improving earnings. A 1% improvement in pricing raised profits by 6% on average."
Odd-even pricing strategy can be powerful when executed correctly. Many brands leverage both pricing strategies effectively to differentiate their high-end products from lower-end, sale, or clearance items. The benefits of odd-even pricing are especially evident for large brands with diverse product lines, as this approach allows them to cater to various consumer budgets and preferences while enhancing perceived value and price positioning.
Research has consistently shown that odd pricing strategy, particularly with a "99" ending, can significantly boost sales. But the impact of this strategy can vary depending on the pricing context and product category. Consumers often perceive a "99" ending as a better deal than a "95" ending for low-priced items. However, this preference can reverse for higher-priced items.
For Odd-Even Pricing example, a shampoo bottle priced at $9.99 might sell better than one at $9.95. Conversely, a high-end television priced at $1,499.99 might not perform as well as one priced at $1,499.95. In this case, the "99" ending could negatively impact the product's perceived quality. This Effect becomes even more vital for higher-priced items.
Even pricing, conversely, can be used to draw attention to new products and enhance brand perception. Both discount and luxury retailers can employ this strategy. Retailers can simultaneously promote other discounted items by pricing new items with an even ending. This can create a sense of urgency for consumers to purchase older, cheaper items before the new collection replaces them.
Therefore, effective Odd-even pricing strategy requires careful consideration of product category, pricing context, and consumer perception. By grasping these factors and applying the appropriate strategy, brands can leverage pricing to drive sales and enhance their brand image.
1. Starbucks (Odd)
Starbucks, the global coffeehouse company, strategically employs odd pricing on its menu, often ending prices at .95. This subtle tactic creates a perception of affordability, tapping into the psychology of small, incremental price differences. Positioned on the odd-even spectrum, such pricing strategies influence how consumers perceive value—leading them to view these prices as slightly lower and making them more inclined to make additional purchases or upgrades.
2. Louis Vuitton (Even)
Luxury retailers typically avoid odd-even pricing as it's often linked to value-oriented products. For instance, Louis Vuitton opts for round-number pricing, such as £5500.00 for its Rendez-vous bag, to enhance the perception of exclusivity and align with the expectations of their premium clientele, making the product appear more luxurious and desirable.
Hence, Odd-even pricing can be a robust psychological tool. But putting it into practice, especially for complex product portfolios, can be tricky.
Polestar's AI-led revenue management lets you simulate pricing with precision. By aligning marketing initiatives with sales, finance, and other departments, our approach provides a comprehensive view of the customer journey, enabling businesses to optimize efforts for maximum ROI.
Request a demo today to discover how our Profit Pulse platform and its cost-saving, time-efficient features can enhance your RGM decision-making.
Quite frankly, odd-even prices create an illusion of a good deal. Customers are more expected to discern a price ending in a 9 as being lower than a price ending in a 0. This psychological impact can invigorate impulse purchases.
Not necessarily. Odd pricing can encourage impulse buying and develop a perception of better value, but its impact varies relying on factors such as - target audience, product category, and market competition. Businesses should analyse and test outcomes before depending on this strategy.
Odd-even pricing is effective when aligned with brand positioning, product attributes, and customer segments. To maximize impact, prices should be optimized and tested regularly using feedback from marketing, sales, and customer service. Transparency and consistency are also vital—communicating the pricing rationale builds trust. Understanding the pros and cons and following best practices helps enhance its advantages while minimizing risks.
Key metrics span short-term and long-term outcomes:
Yes. AI-powered pricing engines such as ProfitPulse can use predictive models to identify when odd vs. even price endings perform best. By factoring in SKU performance, competitor pricing, and customer demographics, AI ensures pricing decisions are not just gut instinct but data-driven, maximizing both sales and margins.
Hence, Odd-even pricing can be a robust psychological tool. But putting it into practice, especially for complex product portfolios, can be tricky.
Polestar Analytics AI-infused RGM suite - ProfitPulse lets you simulate pricing with precision. By aligning marketing initiatives with sales, finance, and other departments, our approach provides a comprehensive view of the customer journey, enabling businesses to optimize efforts for maximum ROI.
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