Odd-Even Pricing

What is Odd-Even Pricing?

Odd-even pricing is a pricing strategy involving the last digit of a product or service price. Prices ending in an odd number, such as $1.99 or $78.25, use an odd pricing strategy, whereas prices ending in an even number, such as $200.00 or 18.50, use an even strategy.

History

The original intention of using an odd pricing strategy, so the story goes, was to force the cashier to open the cash register to give change. By pricing an item at $4.75 or 49.95, the cashier would likely need to get access to the change in the register, which recorded the sale. Otherwise, theoretically, the cashier could more easily pocket, say, $5 or $50 without ever having to open the register.

Psychology

It has been suggested that pricing items just under a whole number, such as at $29.95 instead of $30.00, makes the price seem like a bargain – that customers will focus only on the first number and perceive the price to be closed to, in this case, $20 than to $30. In broader terms, odd pricing suggests a bargain versus even pricing, which encourages buying.

According to a 1997 study reported in Marketing Bulletin, more than 90% of advertised prices at that time ended in an odd numeral. The economy has changed and shoppers are certainly savvier today, but it is likely that a majority of prices still end in an odd number.

Market Positioning

If buyers do see odd numbered prices as bargains, that perception should play into a business’ pricing strategy. If the company desires to be seen as a good value, or a discount retailer, pricing items using an odd pricing strategy makes a lot of sense. And companies that want to be seen more as an upscale retailer, or with premium products or services, pricing using whole numbers – even numbers – makes more sense.

Retailer Pricing Schedules

Some retailers use the last digit in their product prices to indicate how discounted it has been and whether it could be discounted further. Target, for example, has such a pricing schedule. Sources report it looks like this:

  • Products are discounted in increments from 15% to 30% to 50%, then 70%, and finally, 90%
  • Prices ending in 6 or 8 will be marked down again during the next repricing cycle, which happens about every two weeks
  • Prices ending in 4, such as $12.94, are final clearance and will not be discounted any further

When choosing a pricing strategy, it appears that going with an odd price, which results in a dollar figure and cents, such as $3.95, has the biggest impact versus a whole number, such as $10.00. However, the difference between odd and even cents makes less of a difference, as when consumers are comparing $7.99 and $7.98.

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