Odd Pricing

Business / By / September 4, 2023

Odd pricing is a pricing strategy that utilizes odd numbers to create a perception of a bargain in consumers’ minds. By setting prices ending in .99, .95, or other odd numbers, businesses aim to attract customers and increase sales. However, cultural considerations, avoiding overuse, and managing loss perception are important challenges to address.

Characteristics

  • Psychological Effect: Utilizing odd numbers to create the perception of a bargain.
  • Pricing Tactics: Using prices ending in .99, .95, or other odd numbers.
  • Consumer Behavior: Understanding consumer response to odd pricing.

Use Cases

  • Retail Industry: Implementing odd pricing in retail settings to boost sales.
  • Hospitality Sector: Applying odd pricing to hotel room rates and restaurant menus.
  • E-commerce: Utilizing odd pricing for online product prices.

Examples

  • Product Pricing: Setting a product price at $19.99 instead of $20.
  • Service Pricing: Offering a service at $49.95 instead of $50.

Benefits

  • Perceived Bargain: Creating a perception of a bargain in consumers’ minds.
  • Increased Sales: Boosting sales due to consumer response to odd prices.
  • Competitive Advantage: Gaining a competitive edge with attractive prices.

Challenges

  • Cultural Factors: Adapting odd pricing to different cultural norms.
  • Overuse: Avoiding excessive use of odd pricing for its effectiveness.
  • Loss Perception: Addressing the perception of loss due to odd pricing tactics.

Examples of Odd Pricing:

  • Retail Clothing Store: A clothing store prices a pair of jeans at $29.99 instead of $30, creating the perception of a bargain and encouraging customers to make a purchase.
  • Fast Food Restaurant: A fast-food restaurant offers a combo meal for $5.95 instead of $6, making it seem like a more affordable option and enticing customers to order.
  • Online Electronics Retailer: An online retailer lists a smartphone for sale at $299.99 instead of $300, using odd pricing to make the product price appear lower and more appealing to potential buyers.
  • Hotel Room Rates: A hotel sets its room rates at $149 per night instead of $150, aiming to make the price seem more budget-friendly and attract more bookings.
  • Coffee Shop Menu: A coffee shop prices its specialty drink at $4.75 instead of $5, utilizing odd pricing to make the drink appear less expensive and encourage customer orders.
  • Supermarket Sale: A supermarket marks down a product’s price to $2.49 from $2.50 during a sale, giving customers the impression of a discounted offer.
  • Fitness Center Membership: A gym offers a monthly membership for $39.95 instead of $40, making the membership fee appear more affordable and value-driven.
  • Bookstore Promotion: A bookstore promotes a bestselling book for $14.99 instead of $15, leveraging odd pricing to make the book seem like a better deal.
  • Electronics Store Deal: An electronics store advertises a television for $799.95 instead of $800, using odd pricing to make the price point more attractive to shoppers.
  • Online Subscription Service: An online streaming service prices its monthly subscription at $9.99 instead of $10, appealing to consumers looking for a more cost-effective option.

Key Highlights about Odd Pricing:

  • Definition: Odd pricing is a pricing strategy that involves setting prices with odd numbers (e.g., .99, .95) to create a perception of a bargain in consumers’ minds.
  • Characteristics:
    • Psychological Effect: Odd pricing leverages the psychological tendency of consumers to perceive prices ending in odd numbers as being lower than they actually are.
    • Pricing Tactics: Prices are set using odd numbers to enhance the perception of value.
    • Consumer Behavior: Consumers often respond positively to odd prices, associating them with discounts or deals.
  • Use Cases:
    • Retail Industry: Odd pricing is commonly used in retail settings to attract customers and increase sales.
    • Hospitality Sector: Hotels and restaurants use odd pricing to make their rates and menu items seem more affordable.
    • E-commerce: Online retailers apply odd pricing to product prices to encourage purchases.
  • Examples:
    • Product Pricing: Setting a product price at $19.99 instead of $20.
    • Service Pricing: Offering a service at $49.95 instead of $50.
  • Benefits:
    • Perceived Bargain: Odd pricing creates the perception of a bargain or discounted price.
    • Increased Sales: Consumers’ positive response to odd prices can lead to higher sales.
    • Competitive Advantage: Businesses can gain a competitive edge by using attractive pricing.
  • Challenges:
    • Cultural Factors: Businesses must consider cultural norms and perceptions of odd pricing in different regions.
    • Overuse: Excessive use of odd pricing might diminish its effectiveness over time.
    • Loss Perception: Addressing the potential perception of loss or deception due to odd pricing tactics.

In Summary:

  • Odd pricing is a pricing strategy that capitalizes on consumers’ psychological perceptions by using prices with odd numbers to create a sense of value and affordability.
  • This strategy is commonly used in retail, hospitality, and e-commerce sectors to attract customers and boost sales.
  • While odd pricing offers benefits like perceived bargains and increased sales, businesses should also navigate challenges related to cultural considerations, avoiding overuse, and managing the perception of potential loss.

Connected Business Concepts

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

Dynamic Pricing

static-vs-dynamic-pricing

Price Sensitivity

price-sensitivity
Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Price Ceiling

price-ceiling
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Price Elasticity

price-elasticity
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Economies of Scale

economies-of-scale
In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

diseconomies-of-scale
In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Negative Network Effects

negative-network-effects
In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Other Pricing Examples

Premium Pricing

premium-pricing-strategy
The premium pricing strategy involves a company setting a price for its products that exceeds similar products offered by competitors.

Price Skimming

price-skimming
Price skimming is primarily used to maximize profits when a new product or service is released. Price skimming is a product pricing strategy where a company charges the highest initial price a customer is willing to pay and then lowers the price over time.

Productized Services

productized-services
Productized services are services that are sold with clearly defined parameters and pricing. In short, that is about taking any product and transforming it into a service. This trend has been strong as the subscription-based economy developed.

Menu Costs

menu-costs
Menu costs describe any cost that a business must absorb when it decides to change its prices. The term itself references restaurants that must incur the cost of reprinting their menus every time they want to increase the price of an item. In an economic context, menu costs are expenses that are incurred whenever a business decides to change its prices.

Price Floor

price-floor
A price floor is a control placed on a good, service, or commodity to stop its price from falling below a certain limit. Therefore, a price floor is the lowest legal price a good, service, or commodity can sell for in the market. One of the best-known examples of a price floor is the minimum wage, a control set by the government to ensure employees receive an income that affords them a basic standard of living.

Predatory Pricing

predatory-pricing
Predatory pricing is the act of setting prices low to eliminate competition. Industry dominant firms use predatory pricing to undercut the prices of their competitors to the point where they are making a loss in the short term. Predatory prices help incumbents keep a monopolistic position, by forcing new entrants out of the market.

Price Ceiling

price-ceiling
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Bye-Now Effect

bye-now-effect
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.

Anchoring Effect

anchoring-effect
The anchoring effect describes the human tendency to rely on an initial piece of information (the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the process of establishing a price point that customers can reference when making a buying decision.

Pricing Setter

price-setter
A price maker is a player who sets the price, independently from what the market does. The price setter is the firm with the influence, market power, and differentiation to be able to set the price for the whole market, thus charging more and yet still driving substantial sales without losing market shares.

Read Next: Pricing Strategy.

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About The Author

Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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