Tuesday, April 3, 2018

The Charm of Odd Pricing

The Charm of Odd Pricing
By Alex Belloli, Spring 2018 Intern

You’re doing some grocery shopping and come across a box of crackers priced at $3.99. “Why don’t they just make it $4?” you ask yourself. It’s a common question, and the answer might change the way you think about prices.

Prices that don’t end with a rounded number are called odd prices or charm prices. You’ve probably noticed that a lot of goods have these odd prices—about 90 percent of them do—but have you thought about why? One interesting explanation is that, because of how people handle information, they judge price differences on the left-most digits. This suggests that people are more likely to perceive the difference between $1.99 and $3.00 to be $2.01 rather than $1.01. Another reasoning behind odd prices is that the more “specific” a price is, the more likely a shopper is going to believe it as an accurate representation of value.

Here’s something else you’ve probably noticed: expensive or luxury products tend to use rounded pricing ($500, $350, etc.) to prevent a correlation between odd pricing and lesser quality.

Think about that the next time you shop!

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