In order to increase sales, companies use many strategies to attract customer’s attention. Making such a micro-adjustment as reducing the price by one or five cents can make a big change; therefore, this method has been applied by many firms. It becomes especially evident when someone observes prices at retail stores since there are a number of products with a price just below the nearest round number. This tendency clearly demonstrates that businesses believe in the effectiveness of this strategy. However, the reasons why making odd prices increases sales and profit need to be investigated further.
Several researchers offered their own explanation as to why this strategy produces such results. For example, it is argued that “customers see an odd price as being much cheaper than it actually is in relation to the nearest round figure” (Holdershaw et al., 1997, p. 53). In other words, when an item is priced just below a whole number, such as 9.99$ instead of 10$, the consumer automatically focuses on the first digit and perceives the price lesser than it actually is. In the mind of a customer, it may seem like a good discount.
Moreover, another reason for implementing this strategy may be a company’s desire to seem like an affordable brand or a discount retailer. As Naipaul and Parsa (2001) state, “those operating in the low end of a market prefer to use the odd-digit as the rightmost digit in a price-most likely as an indicator of great value” (p. 28). In other words, prices are capable of creating a reputation for the brand, which can also attract more customers.
There are also several factors that may have an impact on the effectiveness of this strategy. For instance, they include the quality of a product, its type. The price level can also influence odd pricing as some companies tend to use even prices for expensive products. It is usually done to create an image of a company that produces high-quality goods. Nevertheless, further research is needed in order to figure out if this pricing strategy is actually effective for every firm.
References
Holdershaw, J., Gendall, P., & Garland, R. (1997). The widespread use of odd pricing in the retail sector. Marketing Bulletin-Department Of Marketing Massey University, 8, 53-58.
Naipaul, S., & Parsa, H. G. (2001). Menu price endings that communicate value and quality. Cornell Hotel and Restaurant Administration Quarterly, 42(1), 26-37.