Question

19. Odd Pricing. Why is that prices are like below (not clean, just odd)? An ABC reporter one time put exactly one gallon of gas at a gas station and gave $2.40 and asked for a change of 0.1 cent. There was no way that the gas station gave the reporter the 0.1 cent change.

Gas                  $2.339

Car                   $19,995

Membership fee $49

DVD                  $9.95

20. Anchoring. A fabulous restaurant presents wine lists like below:

Chateau Margaux                     $390

Chateau Palmer                         $190

Chateau Cost D’estournel             $90

Chateau Ponte Canet                    $49

Chateau Perriere                            $29

If you order Chateau Margaux, chances are that the restaurant does not have it. An actual business research found that which one was ordered most? Reason? Why is that Chateau Margaux is there on the list even though the restaurant has never had it?

Answer 1

Meaning of Odd Pricing :

Odd pricing means keep the price of the product in odd number not in even. For example the price of product is 100 $ , then company instead of keeping it even price / clean price of 100 $ it keep price of the product as 99.99 $.

Why companies keep odd pricing?

The idea of keeping odd pricing is to generate more sales as odd pricing products are perceive to be cheaper than the clean price. It is pricing strategy where buyer feels product is cheaper . As stated in above example buyer will consider the product price is in nineties and it has psychological impact on buyer.

Secondly the example of gas station as given in the question . The gas station would be earning marginal profit on the change as many buyer won't be asking for 1 cent. If the volume is high , then this 1 cent can also earn huge money for the gas station.

Anchoring Pricing:

Anchoring Pricing is keeping the price of the one product high and keep that product price alongside to the high profit making product. So this type of strategy will help company to generate more profit.

For example In a store where buyer is shown a product of 100 $ first and then he has been shown a product of $300 , he would perceive the first product as more cheaper.

Why Chateau Margaux is on the menu even though Restaurant does have that in stock?

In the given example, Restaurant has kept the Chateau Margaux on their menu card as it would generate sales for other wine considering that other wine are comparatively cheaper than Chateau Margaux. Any person coming to restaurant would like to order wine of high value then he preferred more Chateau Palmer after seeing the price of Chateau Margaux.