2009.03.28 14:30:12

John McDaniel

In the last consumer behavior blog I discussed the odd-numbered pricing theory.  A related, but distinct pricing theory is called the round numbers theory.  After some careful consideration it will become clear that if you follow the odd-numbered pricing theory to the fullest extent you will, by default, follow the round numbers theory as well.  That said, it is worth examining the two theories separately for two reasons.  First, many practitioners follow the odd-numbered theory selectively.  I commonly see people utilize the odd-numbered approach for materials but not for professional fees.  Second, if you aren’t going to follow the odd-numbered theory the round numbers theory can provide some improvement over the typical pricing approaches out there.

The round numbers theory says that the best pricing strategies never result in round numbers.  Round numbers are tempting for prices because they are easy for staff to work with.  If your primary pricing objective is the ease of the sales staff job then you have to reprioritize your objectives.  I commonly see professional fees priced in a way that violates this simple concept.  Even if calculations are used to aid in determining the fees there is a strong tendency to round the fees off for the sake of convenience.  Many times people feel that if they round up they will have higher returns than if they used the “ugly” calculated fee result.  Research shows that this is not the case.  Round numbers feel contrived, psychologically.  “Ugly” numbers feel legitimate and formulaic.  Go with ugly numbers.  Make the prices have cents; not just $0.80 but go for the $0.89!  At the very least the final dollars figure needs to be something that is not zero.

The next consumer behavior blog will discuss just noticeable differences and pricing.  Again, I’ll expect to see you sitting on the edge of your seat if not off the edge.

Le Meas,

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

pricing theory | marketing | pricing | Consumer behavior

2009.03.19 01:52:21

John McDaniel

The pricing of services and materials is often viewed as being extremely difficult and frustrating.  Even when a significant amount of analysis has gone into the pricing process the person doing the pricing is left with a sense of doubt regarding the results.  Pricing is a combination of art and science, without question.  In my experience, the scientific tools are seldom put to use in optometric practice.  The most common pricing theory I see in practice is the “I thought these prices would be easier to add up for the staff” theory.  This may shock you, but I am here to tell you that is not a recognized pricing theory.  The field of consumer behavior has given us a few general guidelines to be used when pricing.  While none of the guidelines will give you a formulaic answer that represents the “correct” price, they will help you get nearer to the “perfect” price and maximize the results of any pricing strategy.

The most basic of the pricing strategies is known as the odd-numbered pricing theory.  It is relatively simple as well.  It states that goods (products or services) priced with odd numbers will sell more than those priced with even numbers.  More specifically, the odd numbers need to occur in the proper places in the price.  The most impactful place to use odd numbers are the tens digit, the ones digit, and the one-hundredths digit.  In other words, use odd numbers where the X’s appear in the following price: $12,0XX.8X.  How well does this theory hold up?  Very, very well.  Why does this theory work?  There are several hypotheses but it is not clear exactly which one explains it.  It just works.

The next consumer behavior blog will discuss the round numbers theory and pricing.  I’ll expect to see you sitting on the edge of your seat.

Le Meas,

John McDaniel, OD, MLHR
President/Founder
Waugoo Consulting Group, LLC
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

pricing theory | marketing | pricing | Consumer behavior