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What is Odd-Even Pricing?
Odd-even pricing is a psychological pricing strategy where businesses set the last digit of a product or service price to an odd or even number, depending on how they want customers to interpret the full number. Prices ending in odd numbers seem cheaper than they actually are, while even numbers (particularly “0”) make an item seem more expensive.
The two overarching strategies in odd-even pricing are odd-number pricing and even-number pricing.
- In odd-number pricing, a product or service’s price ends in an odd number, such as $19.99 or $4,999.
- In even-number pricing, the price ends in an even number, such as $20.00 or $5,000.
Some businesses want customers to feel like they’re getting a good deal or encourage impulse purchases. Others want their items to feel high-end or exclusive. Product pricing is a huge factor in how customers perceive your products (and brand as a whole). So, the 1-5 cents or $1 to $5 price difference is also the difference between potentially millions in sales revenue.
- Odd-number pricing
- Even-number pricing
Psychology Behind Odd-Even Pricing
Why it Works
The psychology behind odd-even pricing is based on the anchoring effect and the way the human brain processes numbers. Since people read from left to right, they place higher significance on the first number in a price.
$1.01 off your product price and $1.01 added to it don’t look proportional because subtracting $1.01 means the number before the decimal reduces by 1, but adding $1.01 doesn’t increase it at all. When we look at $2.99 vs. $4.00, the difference looks much greater than when we look at $3.00 vs. $4.01, even though they’re the exact same.
So, when shoppers read a price like $24.99, the “24” acts as the anchor. Even if they know $20.99 equals $30, their brain subconsciously registers the item as less expensive than they would if they were to see $30.00.
In this instance, the dollar amount ($29) is the anchor. The odd-number cent value (.99) is what allows the vendor to reduce the price and be able to use that lower dollar amount without sacrificing profitability.
The same principle works without the decimal. The customer will place emphasis on the leftmost number in the price. If the price were $299 vs. $300, the brain would see $299 as $100 cheaper because it’s in the “$200” category, even though the difference is just $1.
Of course, basic math tells them it’s only slightly cheaper. They know they’re still spending hundreds of dollars. But, in the split second their subconscious mind processes it, this small change triggers the ‘good deal’ response.
Perception of Value
In addition to anchoring, odd-even pricing also plays into the concept of perceived value. Customers subconsciously assign a higher value to items with ending in ‘0’ because the price seems higher. Depending on the commodity and clientele, they might expect to spend more or less for it.
As an example, here’s a quick step-by-step breakdown demonstrating how a shopper, John, might make a purchase from the Louis Vuitton store.
- John decides he wants to buy a nice pair of shoes. Louis Vuitton is a well-known luxury brand, so he chooses to shop there.
- He walks into the store. Immediately, he’s greeted by associates in suits and a clean, upscale appearance.
- He picks out a pair he likes and sees the price tag: $1,000.
- This is exactly what he expects from a world-class designer brand. He’s confident in his purchase because the price confirms his thoughts about the brand’s product quality.
For exclusive and premium products, part of the overall brand perception is how a customer feels when they look at the price tag. If the price of the shoes had ended in a “9,” it might not seem as high-class, which takes away from the buying experience. So, the luxury fashion brand may actually benefit from making its products seem more expensive.
It’s worth mentioning that most companies benefit from the opposite approach, even in the luxury sector. Buyers have an affinity particularly to the number ‘9,’ which means you’re more likely to influence customer behavior (i.e., a purchase) by making the product seem cheaper. In fact, roughly 90% of products have odd-numbered prices.
The origin of odd-even pricing dates back to the late 1800s, but evidence shows prices ending in “9” didn’t become widespread until the 1920s. It wasn’t just about the allure of a bargain; prices ending in “.95” and “.99” were common regardless.
The just-below pricing strategy — where items are priced one cent less than a round number (like $1.99 instead of $2.00) — might also have roots in theft prevention. When items were priced at whole dollar amounts, dishonest cashiers could pocket the money without recording the sale.
By pricing items just below a round number, cashiers were forced to open the cash register to give change, which automatically recorded the transaction and deterred theft. This tactic necessitates the use of smaller denomination coins and ensures that the transaction is logged, protecting the store’s profits.
Inflation and the consequent reduction in the value of money have led to changes in this pricing practice. As smaller denomination coins are phased out — like the penny in some countries — the final total of purchases is rounded to the nearest five cents or similar denomination. This rounding has influenced just-below pricing: for instance, items might end in .98 or .99, which would round up, or .96 and .97, which would round down.
In Australia, despite the absence of one- and two-cent coins since 1992, this pricing method remains prevalent for items under a few hundred dollars. Similarly, some European countries that have eliminated the smallest euro coins still see this pricing strategy in use.
Prominence in Retail
Although it’s seen just about everywhere today, retail businesses were the first to use the odd-even pricing tactic. It’s become a fundamental part of the retail landscape and is considered one of the most effective pricing strategies. This is because it taps into the human psyche and influences consumer behavior without them even realizing it.
Many retailers have even found they can charge more for a product simply by adding a “.99” to the end of it. A $28.00 hat is actually less desirable to shoppers than a $29.99 one, even though they end up spending more.
A driving force behind this is the fact that even value-conscious consumers don’t really know how much a product should cost. They can only compare it to other similar products in the same price range. So, as a business, you can set prices however you want (assuming you account for price sensitivity).
Does Odd-Even Pricing Work?
In the early 1900s, JCPenney studied the psychological impact of odd-number vs. even-number pricing. Through their research, they found that customers who saw prices ending in 7, 8, and 9 felt like they were getting a better deal. The odd numbers specifically built urgency to make a purchase decision.
Research has since found that the number “9” is the most effective for an odd pricing strategy. For example, a study conducted by MIT and University of Chicago researchers found that, when selling three of the exact same items at $34, $39, and $44, the $39 item sold best.
Conversely, luxury goods benefit from even-number product prices, particularly those ending in “0” or “00.” This is because luxury items are the opposite of everyday commodities — people expect to pay more for them because of the quality or status associated with them. It all comes down to perceived value.
That said, odd-even pricing methods work best when the words and visuals around them reinforce the value you’re trying to communicate. Your copy, branding elements, and pricing need to complement each other.
Advantages and Disadvantages of Odd-Even Pricing
- Positively influences consumer demand and value perception
- Guides customers to a purchase decision
- Reduces the risk of buyer’s remorse
- Creates an illusion of a bargain or discount, leading to increased sales
- Provides flexibility for price optimization — businesses can experiment with different prices and find the most effective one
- Reinforces your brand positioning
- Builds trust with your target audience
- Can be seen as deceptive or manipulative
- Erodes customer trust when used too often or in inappropriate situations
- May not work for every product or market segment
- Overreliance on odd-even pricing may reduce profit margins in the long run
- Requires a deep understanding of consumer behavior and willingness to experiment with prices
Consumer Perception of Odd-Even Pricing
Using odd numbers when pricing products is a well-known marketing strategy that’s been studied extensively over 100+ years. It’s in every marketing class, and it’s well-documented across social media, literature, and the web.
In short: When your customers see a “99” at the end of your price, they know why.
That doesn’t mean it isn’t without its risks.
On the surface, helping consumers move toward a buying decision with odd pricing might seem harmless. You’re in the business of making money, and helping them understand your product’s value is convenient for them.
But where do you draw the line?
Odd-even pricing can be used unethically in a practice known as “price anchoring.” If you were to set a deceptively high “original” price or artificially raise your previous one before listing it on sale, you’d create the illusion of a significant discount.
For example, a retailer might display a $40 product with an “original” price of $50, marked down to $39.99. The odd-ending price suggests a bargain, but if the item was never intended to sell at $50 and was worth $40 all along, the discount is misleading.
Consumer Attitudes and Trust
If your odd-even pricing model is obviously deceptive or customers don’t feel they received the value it communicates, they’ll question your trustworthiness as a brand.
Conversely, when you price a product at what consumers feel is the “right” value for its worth, then odd pricing can increase consumer trust.
Honesty and transparency are vital to maintaining your brand’s credibility with customers. Ensure your pricing strategy aligns with these values to prevent any negative backlash from consumers.
Striking a Balance
Ultimately, the odd-even pricing method works best when it’s used in moderation and with authenticity. It should never be the only tactic in your arsenal, but rather one of many strategies you use to influence consumer behavior.
By understanding how it impacts customer attitudes and perception of value, you can strike a balance between using it as an effective marketing tool and avoiding any ethical implications.
Odd-Even Pricing Strategy Considerations
Your target audience’s demographic (or firmographic), psychographic, and cultural traits will influence how effective odd-even pricing is for your products. For example, a value-conscious customer base will respond well to “99” pricing, while affluent customers may feel it cheapens the product.
As mentioned earlier, luxury goods sometimes benefit from even-numbered prices. However, everyday items like groceries and household items sell exponentially more when they end in odd numbers. The key is understanding your product’s perceived value and how that aligns with consumer expectations.
Your brand’s positioning and identity should be consistent with your pricing strategy. If you’re a luxury brand, odd-even pricing may conflict with the image you’ve built. On the other hand, if your brand is known for offering high-quality products at affordable prices, “99” pricing may reinforce that perception.
Price Elasticity of Demand
You’ll never sell a $130 product for $129.99 if your customers expect to spend $80. Your first goal should be to set a fair price according to the value your product provides and the market’s willingness to pay. Because of price elasticity, odd-even pricing doesn’t automatically increase sales.
Your competitors all probably price their products within the same range. This is generally a good benchmark for price elasticity. From there, you can decide whether you want to position your brand as a premium or affordable option in the market. Additionally, you can adjust your prices based on their sales strategy and target audience.
Of course, revenue performance will pay a huge role in how you price your products. You’ll need to balance the costs of production and overhead with consumer demand and competitive pressure while keeping an eye on profitability. Properly using odd-even pricing can help boost sales, but it shouldn’t take precedence over achieving a desirable profit margin.
People Also Ask
What is an example of odd pricing?
An example of odd pricing would be a product being priced at $3.99 rather than $4.00. Since the price makes it seem like the item is still priced in the “$3.00” range, the brain partially ignores the fact that it’s only one cent away from $4.00.
What is an example of even pricing?
An example of even pricing would be a product being priced at $40 instead of $39.99. This type of pricing is often used for luxury or high-end products, as it conveys a sense of elegance and premium quality.
What industries use odd pricing and even pricing?
Odd-even pricing can be found in various industries, including retail, hospitality, and ecommerce. It’s commonly used for everyday items like groceries or household goods, but it can also be seen in luxury goods and services. Ultimately, the use of odd-even pricing depends on the target market and product type.