Estimating the effect of odd pricing

This study used choice modelling to estimate the effect of odd pricing on the demand for three products: a $4 can of fly spray, a $7 block of cheese, and a $50 electric kettle, with each product represented by three different brands. For cheese and fly spray a significant odd‐price effect was observed at 99 cents but not at 95 cents, whereas for the electric kettles a significant odd‐price effect occurred at 95 cents but not at 99 cents. The estimated value of the odd‐pricing effect ranged from 4 cents for fly spray, to 6 cents for cheese, to $3.18 for the kettles. The results of the study provide empirical support for the assumption that odd pricing generates greater‐than‐expected demand, at least at the individual brand level, and for the common practice of setting retail prices that end in 95 cents or 99 cents.