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Odd pricing is an effective strategy

Odd pricing is a practice of pricing a product just below the nearest round number. The prices ending in nine are most popular followed by those ending in five. Let us see how this retail practice benefits retailers..

Tags: Odd pricing, magic prices, charm prices, psychological prices, irrational prices, intuitive prices, rule-of-thumb prices, even prices

BY Neha Malhotra  |  Dec 02, 2009  | 
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Odd pricing is an effective strategy

Odd prices also referred to as magic prices, charm prices, psychological prices, irrational prices, intuitive prices or rule-of-thumb prices are not based on strict mathematical calculations. Price tags ending in nine and five account for a majority of the retail prices.

 

Origin

In olden days, in the US the goods imported from Great Britain were of superior quality. When their price was converted into dollars, its outcome was an odd price. So people identified odd priced goods as those of a higher quality, which led retailers to tag even the domestic products at an odd price to catch the customer’s eye. With time, odd pricing became a regular practice. However, its significance has changed over the years.

 

Psychological effect on customers

Odd pricing is believed to have a considerable impact on a customer’s mind. The illusion of much cheaper products compels a buying response. Also it is believed that because consumers are exposed to a continuous flow of prices; they store only the more valuable first digits of a number. This is so because the memory processing time is slower in humans. Odd pricing is also believed to put across the impression that goods are marked at the lowest possible price because it is a belief that even prices is an outcome of the retailer rounding up the price to a whole number. Odd prices for the same reason even give an impression of honesty of a retailer.

 

Retailers take on odd pricing

Retailers are using odd pricing extensively and feel it really works well with their customers. They even sketch their advertising plans highlighting the aspects of an odd price and emphasising on the money saving aspect to catch a customer’s frenzy. Jagdeep Kapoor, Chairman and Managing Director, Samsika Marketing Consultants cites the following reasons for odd pricing, “In terms of affordability; the consumer feels they are paying less and on the other hand the consumer feels that he will get some money back, for eg, for Rs 495, wherein the consumer pays Rs 500 and gets Rs 5 back. So these work well with a customer.”  Agreeing Pavan Gadia, VP, Ferns N Petals “When a customer sees a price tag of Rs 199, the figure of Rs 200 doesn’t come to their mind immediately. The value that is perceived is that of the lesser number giving a comfort factor to the customer.” Retailers also believe that greater than anticipated demand occurs at odd price points. Jay Gupta, MD, The Loot says, “When a customer looks at an odd price he perceives a lesser value. It does effect the decision making process of a customer to whom Rs 999 sound better than Rs 1000.”Adding he says, “But there is a great challenge for a retailer when he opts for an odd price. He has to have change in the tilt. It is challenging to get coins in place which is why a lot of retailers now keep sweets and chocolates instead of change.”

 

Customer survey

After what the retailers had to say, we thought it was imperative to get a feedback from customers as well to find out if what they are thinking is how their customer’s psyche also works? We walked into a few stores and asked a few customers who were shopping as to what effect odd pricing had on them and how their mind converts odd prices or how they perceive odd prices. Anahat says, “When I see a tag of Rs 495, I round it up to Rs 500.” Whereas Aman said, “The first impression he gets of an odd price is the first digit price with just some bucks higher.” Agreeing Anjali said that if she saw a price tag of Rs 455 or the like she would perceive it as Rs 400 which is psychologically comforting and has the urge to buy more. So we can comprehend that at the first look an odd price does effect a customer’s buying decision. On this Gadia opines, “It definitely works and the actual price is registered in the customer’s mind a little later. Odd prices act as a catalyst. It attracts the customer and influences his buying decision. For Ferns N Petals’ online portal, 90 per cent of the merchandise is odd priced.”

 

Sum up

Though it may not hold true for cent percent of the times, but odd prices sure work most of the times. And this is reflected in the widespread practice of odd pricing.

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Deepak Sharma November 12, 2009 at 11:24 am

Good one. Agree to the information.

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