Odd pricing is a popular marketing technique to create greater consumer demand. Many retailers use this tactic by making small pricing adjustments. The fundamental psychology behind it is to convey the impression of a discounted price. Setting the price just below a round number where the digits to the extreme right are reduced to construct a number slightly less than the nearest round number drives sales and increases profits.
For instance, a product priced at €3.00 is reduced to €2.99 or one prized at €1.00 to €0.99. Researchers believe that when a customer sees that the price ends in 1,3,5,7, or 9 they feel that they are getting a better deal. Despite the little monetary benefit, it works. Surprisingly, a product priced at €0.99 often leads to a 10% -30% higher sales than when it is sold at €1.00.
How it Affects the Consumer?
Odd pricing has shown an effect on impulse buying. The small price change encourages people to buy without thinking as it looks like they are getting a discount. Psychologists suggest three main reasons for this odd price phenomenon.; the left digit effect, the image effect and the perceived gain effect.
- The left digit effect
According to research, consumers focus on the left-most figure of a price, followed by the second one and so on. As consumers read prices (in the Arabic number format) from left to right, they naturally take in the left-most figure first. Consider a discounted price of €1.79 from a standard price of €1.93 versus a discounted price of €1.75 from a standard price of €1.89.
Both price reductions are equal in their absolute value (- €0.14), but the first sale offer will have a greater impact. In the first offer, this digit changes by 2 units (9 to 7), whereas in the second offer, units only change by one unit (8 to 7). As consumers focus on the first changing digit from the left, the first offer seems more attractive.
- The image effect
Apparently consumers perceive an offer with odd prices as a great deal, despite no such statement being made. The psychological reason for the association is that consumers have become conditioned to odd prices when goods are discounted or promoted.
Therefore, prices, ending in nine, are associated with an unbeatable low price and consumers feel compelled to go with the offer.
- The perceived gain effect
This results from consumers rating a difference in prices illogically higher than the actual value of it. When evaluating a given price, e.g. €2.99, consumers consider the closest round price as the reference price, here €3.00. The difference between the odd and the round price is perceived as a gain, which, due to the large difference of “99” and “00”, seems disproportionately high.
Getting the Trick Right
The odd pricing effect is useful, but it needs to be applied correctly for it to work. Research suggests that based on sales volumes, the most effective odd prices end with “99” when the same product was priced against €3.00, €2.99 and €2.88.
However it is important to note here that to master odd pricing, knowing the setting is crucial because the 99-price-effect does not work identically everywhere. There are fundamental differences that make adjustments inevitable.
Despite the fact that consumers’ price preference is a 99-ending number rather than the cheaper 95-ending for low price items, it's not the same case for high priced items. Suppose, a pizza is priced at €4.99, it will generate higher sales than when it is advertised for €4.95. However, if a food processor is priced at €59.99, the sales volume will be lower than if it were advertised at €59.95. In the case with food processors, the 99-price ending would damage the consumer’s perception of the product’s quality. This opposing effect becomes even stronger for higher 3- or 4- digit prices.
We have also observed and learnt that signaling the price decrease on established products is a better strategy. Odd pricing tactics should be used for more newer products since the ‘on sale’ sticker usually diminishes the effect.
The odd-price effect works differently across cultures
In Chinese societies price endings on 4 and 8 have a greater impact on sales volumes than endings on 9. Since they hold close symbolic associations to the words “death” (4) and “luck” (8), this can be a much more powerful price ending than ‘9’.
In B2B, customers with an engineering background often have a dislike for “marketing” prices that end on ‘.99’ and prefer prices that appear random (e.g., ending on .87). This suggests that they think the price resulted from some calculated mark-up logic.
Knowing your market and understanding where these strategies would make the biggest impact can create pricing advantages whereas not knowing them can lead to a negative influence on customers’ perception.
In theory, the odd price effect is well understood and its effects are known. In practice, making best use of it is difficult, particularly when optimizing a product portfolio. The Buynomics SaaS pricing solution lets you simulate how your sales are affected by using odd prices — and how to make best use of them.
Key take-aways
- Odd pricing works, but it’s a bit more complicated
- Differences in products and cultures matter
- The Buynomics SaaS solution helps you make best use of odd prices
