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, one is left with a sense of doubt regarding the results.
Pricing Is A Combination Of Art And Science
Pricing is a combination of art and science, without question. In my experience, the scientific tools are seldom put to use in optometry 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.
It Is A Simple Strategy To Employ
The most basic of the pricing strategies is known as the odd-numbered pricing theory (or simply “odd pricing theory”). It is a simple strategy to employ. The theory states that 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 impactfull 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? After all, everybody is aware of this ploy, right? In reality, it works very well. Why does this theory work? There are a couple of thoughts on the mechanism of odd numbered pricing. One is that humans use lots of cognitive short cuts all the time (which is absolutely true) and even though they intellectually understand that $20.00 is almost the same as $19.99, the cognitive short cuts bury any analysis and simply look at the fact that 19 is less than 20.
Consumers Don’t Like Arbitrary Prices
Another thought, which I happen to believe is the primary explanation for this, suggests that the primary distinction between prices with more even numbers and those with more odd numbers is the degree of perceived arbitrariness with which the final sales price was determined, which is also a reasonable indication of how fair the price is. This makes sense if you look at some examples. When you see one frame priced at $400.00 and another comparable frame priced at $417.87, which price seems to be more arbitrary or “made up”? Which price seems like there was a logical and algorithmic reasoning behind determining it? Consumers don’t like arbitrary prices (including when they are lower). Whatever the exact machinations are in odd numbered pricing, what matters is that it works.
The next consumer behavior blog will discuss the just noticeable differences aspect of pricing theory that when combined with odd numbered pricing provides the best tools for setting prices for all the goods and services offered in your practice.
John McDaniel, OD, MLHR