I was out shopping the other day when I came across a product that was priced at $3.99 instead of $4.00. I thought to myself, “That’s odd-even pricing.” I had heard of this pricing strategy before, but I never really understood how it worked or why businesses would use it. After doing some research, I found out that odd even pricing is actually a pretty smart way to price your products!
Odd Even Pricing Is Effective or Deceptive?
Odd even pricing is setting the price of a product or a service based on whether the last two digits of the number are even or odd.
Odd pricing is when prices end in an odd number, such as $1.99 or $78.25. Even pricing is when prices end in an even number, such as $200.00 or 18.50.
The theory is that customers perceive an item as costing less when it is priced at $0.99 rather than $1.00, and are therefore more likely to purchase it.
While odd-even pricing may work in some cases, it is not always effective, and can sometimes backfire if customers feel that they are being “tricked” into thinking an item is cheaper than it is.
How Odd-Even Pricing Works in Retail
A theory in retailing suggests that customers may be sensitive to price endings. Lots of research has been conducted to figure out the ideal price for products.
What price point is most appealing to customers?
Pricing that ends in 0.01, 0.03, 0.05, 0.07, 0.09 is odd.
Prices that end in 0.50, 6.10, 55.00, 0.10, 0.20, 0.30, 0.40 are even.
The idea here is that prices that end at .99 sound cheaper than those ending at .00.
Pros and Cons of Odd-Even Pricing
As with any pricing model, there are pros and cons to using odd-even pricing.
These pros and cons will vary by industry and business type, whether we are talking about SaaS, restaurants, e-commerce, or brick-and-mortar retail.
Advantages
Let’s begin by discussing some of the benefits of using an odd-even pricing model.
1. Motivates Impulse Buyers
People are more likely to buy your product if you charge $9.99 for it because they’ll think it’s a fair deal.
Customers may perceive an odd price as a discount, so they may buy without thinking too much about the total cost of the transaction. This could result in an impulsive decision.
2. Encourages Bigger Purchases
Since odd prices look like discounts, customers are more inclined to purchase more. In addition, by pricing items in an odd number, it’s harder for a customer to add up the total price. Therefore, the customer ends up underestimating the cost and buying more.
Disadvantages
Some of the less-than-ideal outcomes of an odd-even pricing model:
1. Damaged LTV and Perception
Customers who purchase your product because they perceive it as a deal are not likely to be high-value customers with a long retention rate. More likely, they are one-time buyers who are only purchasing because of the perceived discount.
To boost your LTV and retention rates, you should consider pricing strategies that don’t rely on discounts to attract customers.
One-time sales may not be the best strategy for boosting LTV and retention for your small business. In SaaS, you want a pricing strategy that encourages customers to come back and buy again.
2. Incorrect Perception of Value
If you set the price of your product at an odd number, your customers may think you’re a bargain store. If you set it at an even number, they’ll think your products are expensive. You can avoid this by picking the price that best fits the value of what you’re selling.
Odd-even Pricing Examples
Some common examples of odd-even pricing can be found in the jewelry industry, where both sides of the strategy are used.
Odd Pricing Strategy
Not everyone has the money to spend on expensive pieces of fine jewelry, but that doesn’t mean they can’t have gorgeous accessories.
On the home page of Kay Jewelers, some advertisements read “GIFTS UNDER $199” or “24.99 SELECT HEART JEWELRY”.
Some of the items in this store are priced very precisely. For example, the item that says “$103.95” and the one that says “59.49” are both marked in red text. This probably means that the store is trying to give the impression that these items are on sale or discounted in some way.
Even Pricing Strategy
On the other hand, there’s Tiffany & Co. which is notorious for prices that are for people who enjoy the finer things in life.
If you want to see how much a piece of jewelry costs at Tiffany & Co., you have to scroll your mouse over it. The fact that the prices aren’t openly displayed signifies that it is luxury.
But, once prices have been disclosed, they are typically priced at an even number, such as $2,200. And there are no discounts for customers at Tiffany’s because its clients don’t care about discounts.
Conclusion
Odd even pricing is a popular and smart way to price your products. By pricing your products at an odd number, like $3.99 instead of $4.00, you can make customers perceive the product as being cheaper than it is and increase sales.
