Odd Even Pricing: Psychological Strategy in Action

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 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-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-even pricing becomes as rationality in purchasing decisions usually increases.

Let's make the difference between odd pricing and even pricing clear.

The Psychology behind Odd-Even Pricing

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—

Let’s explore if it really works?

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 and Cons of Odd-even Pricing

Perfecting Odd-Even Pricing: Proven Strategies

"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 can be a powerful strategy when executed correctly. Many brands leverage both pricing strategies effectively to differentiate their high-end products from lower-end, sale, or clearance items. This approach is particularly beneficial for huge brands that offer different ranges of products, allowing them to cater to various consumer budgets and preferences.

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 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 strategies 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.

We’re not done! Sneak Peek at some of the real-world Odd-Even pricing examples

1. Starbucks (Odd)

Starbucks has a unique pricing strategy that sets it apart from other coffee chains. Notice how the prices on their menu end in .95 instead of the more common .99. This deliberate choice reinforces their premium brand image.

While .99 is often associated with 'low price,' Starbucks is a high-quality luxury brand. Their target consumers are willing to pay a slightly higher price for exceptional coffee. By using .95, Starbucks suggests sophistication and exclusivity that appeal to their discerning clientele.

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.

Should odd-even pricing be part of your business strategy?

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.