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Understanding consumer behavior might require a little understanding of psychology but can be very useful in the marketing world. A strategy that I have always thought was interesting was odd-even pricing. It can influence consumers’ perception of value by taking just one penny off the price tag with little risk. For example, on the balance sheet, there isn’t much of a difference between $9.99 and $10.00. But it can make the difference between buying and leaving that product on the shelf in the eyes of the consumer.
When a product’s price ends in odd numbers like .99, .97, .95, etc., consumers perceive this as a good deal. On the same token, it can be perceived as cheap and cause consumers to be hesitant when in the consideration phase of the consumer funnel. An example of odd pricing is gas. Gas stations always end their pricing in odd numbers such as “…ninety-nine and nine-tenths of a cent.” There are a few exceptions with gas because of constant demand, low perceived value, and its common use of being a loss leader. Loss leaders are products/services that aren’t extremely profitable but bring in new customers and or attract additional sales. For gas stations, this would include food, drinks, and tobacco. One issue with odd pricing is that consumers lack brand loyalty. If your objective is to sell products at a “competitive” (odd) price, then you will attract customers out of convenience. If you want to create a higher perceived value, then even pricing would be more your style.
When a product’s price ends in even whole numbers such as $100.00 or $10.00, consumers will perceive this as elegant and will assume it is of great quality. Examples of even pricing include higher-end restaurants and retail stores. Think of that $70.00 filet mignon from your favorite steak house, or your treasured pants from Lululemon that are $128.00. Notice how they don’t end in .99 or .50? The objective here is to sell the experience, not the product. Now that doesn’t necessarily mean selling them hot steamy garbage for $35.00, but if consumers buy what is perceived as high-quality, they will associate the brand and its products as upper echelon. Which is a great personification of your brand, creating brand loyalty and increasing customer lifetime value. It’s also worth mentioning that any product can utilize even pricing. Premium products were easiest to draw the correlation between the perception of quality and branding.
Using these pricing strategies creates a perception of your brand among consumers. That can be great if done correctly, but it can also be a disaster if done poorly. What you need to figure out is do you want to sell more products that are perceived as a “deal” to potentially less-loyal consumers? Then by all means use odd pricing. But, if you want to create the perception that your company is a premium brand, then even pricing should do the trick. There are many variables to consider when pricing your products/services, so it is best to account for all factors before determining price. You need to understand your industry, the products you sell, and the target audience you hope to reach before pricing because if you don’t, you’ll miss your mark.
