Odd-even pricing: Does it work for SaaS products?

Did you know that the placement of a single digit in your price can seriously impact your SaaS sales? The psychology of pricing plays a powerful role in how customers perceive value. Odd-even pricing is a prime example of this phenomenon in action.

In this article, we'll explain odd-even pricing and see whether this classic retail tactic can truly work for SaaS products. We'll examine the science behind it, weigh the pros and cons, and guide you on how to implement it effectively.

You'll also learn:

• The psychological triggers behind odd-even pricing
• How to align pricing with your target audience
• Common mistakes to avoid
• How the right billing platform can empower your pricing strategies

Let’s begin by explaining what odd-even pricing is and how it’s used.

What is odd-even pricing?

‍A definition of odd-even pricing is: A psychological pricing strategy that plays on how we perceive numbers. It involves setting prices with either odd or even numbers as the last digit to influence how customers perceive the value of a product or service.

This tactic, which has some interesting theories behind it, has been a mainstay in consumer markets. Now it’s becoming increasingly evident in SaaS as well. But how and why has this tactic become so effective? Here's the breakdown and quick comparison:

• Odd pricing: Think $4.99, $29.95, or even $999. These prices ending in odd numbers create a sense of value and affordability.
• Even pricing: Now, imagine prices like $5.00, $30.00, or $1,000. Even pricing conveys a sense of quality, premium value, and simplicity.

Odd-even pricing, in its simplest form, is about using these subtle numerical cues to shape customer perceptions. It's a powerful tool that can be used to drive sales, position products, and even build brand identity.

While widely used in traditional retail and restaurants, this odd-even pricing strategy is becoming increasingly relevant in the SaaS industry as companies look for new ways to attract and retain customers.

But does it really work for SaaS?

Why SaaS companies consider odd-even pricing

For SaaS companies, it's more than just a few cents here and there. It's about psychology, perception, and guiding choices.

‍Psychological triggers

Odd-even pricing taps into our subconscious biases. It's a trigger that influences our buying decisions:

• Odd prices ending in 9 or 5 speak to the budget-conscious customer. They signal discounts or savings, even if the difference is minimal. This effect can be particularly useful for lower-tier plans or attracting new customers.
  
  
• Even prices, particularly those ending in 0, appeal to a different mindset. They convey a sense of premium quality. Customers seeking enterprise solutions often associate even pricing with trust and transparency.

Perceived value alignment

Odd-even pricing can also help align your pricing with the perceived value of your product. For example:

• Odd pricing works well for lower-tier or entry-level plans. It reinforces the idea that these plans offer great value for the price.
  
  
• Even pricing is a natural fit for enterprise or premium SaaS products. It strengthens the perception of these products as high-quality, complete solutions.

Simplicity in decision-making

In SaaS, where pricing plans can sometimes feel like a maze, odd-even pricing offers a subtle way to guide customer choices.

‍By using odd and even numbers, you can subtly signal the value proposition of different plans. This tactic can help customers quickly pinpoint the plan that best suits their needs and budget. It makes the decision-making process smoother.

The science behind odd-even pricing

Odd-even pricing might seem like a simple trick, but there's scientific research backing it up. Let's look into the science.

‍Odd pricing and consumer psychology

‍The “Left-Digit Effect”: Research suggests that we tend to overemphasize the leftmost digit in a price. This "left-digit effect" is documented in a study by Thomas and Morwitz (2005) published in the Journal of Consumer Research.

They found that consumers perceive a bigger difference between $2.99 and $3.00 than between $3.00 and $3.01. They do so even though the difference is only one cent in both cases. This cognitive bias makes odd prices seem lower than their even counterparts.

‍The "Sale" association: Another study by Schindler and Kibarian (1996) in the Journal of Retailing found that consumers have learned to associate odd prices with sales and discounts. This association creates a sense of urgency and encourages impulse purchases.

Even pricing, perceived quality, and high value

‍Round numbers and processing fluency: Research in the Journal of Consumer Psychologyby Lee and Labroo (2004) suggests that even prices, particularly those ending in zero, are processed more fluently by the brain. This ease of processing leads to positive feelings and a perception of higher quality.

‍Price as a quality cue: A study by Stiving (2000) in the Journal of Management Scienceexplored how consumers use price as a cue for quality, especially when other information is limited. Even prices can signal higher quality and prestige, particularly for luxury goods and services.

Cultural considerations

A study about cultural influence on price perception in the Journal of Product & Brand Management highlights how factors in various cultures influence price perceptions.

‍It found that consumers in some cultures are more sensitive to odd prices, while others show a stronger preference for even prices. This underscores the importance of considering cultural norms when implementing odd-even pricing strategies.

Pros and cons of odd-even pricing for SaaS

Like any strategy, odd-even pricing has its upsides and downsides. Let’s take a closer look at the pros and cons of using odd-even pricing for SaaS.

‍Pros

• Higher conversion rates: Odd pricing can be a powerful nudge for budget-conscious customers. It creates a sense of urgency and encourages faster decisions. It then leads to higher conversion rates, especially for lower-priced plans or during promotions.
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• Perceived affordability: Odd pricing can make your SaaS plans seem more accessible. Even a small difference can make a plan feel more budget-friendly, especially for startups. The left-digit effect makes the price appear lower than it is.
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• Premium positioning: Even pricing can help position your SaaS product as a premium solution. This can be particularly effective for enterprise-level plans or products targeting larger businesses. Even pricing conveys a sense of quality and confidence.
  

Cons

• Perceived gimmickry: While effective in some contexts, odd pricing can sometimes come across as a gimmick, especially for enterprise SaaS products. This issue can undermine the perception of professionalism and value.
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• Limited long-term impact: The psychological effect of odd-even pricing may diminish over time. As customers become more familiar with your product and its pricing, the initial impact of odd or even numbers may fade.
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• Mismatch with SaaS billing norms: SaaS customers often expect round numbers for recurring billing. Odd pricing can create confusion and complicate billing processes, especially for businesses managing multiple subscriptions.

How to implement odd-even pricing for SaaS products

‍Here's a step-by-step guide to help you implement this strategy effectively.

Step 1: Match pricing to your target audience

‍Odd pricing can be very effective for single users, startups, and small to medium businesses (SMBs). These customers are often more price-sensitive and looking for value. Odd prices reinforce the idea of affordability and can encourage quicker conversions.

‍On the other hand, even pricing might be a better fit for enterprise clients or premium-tier plans. These customers often prioritize quality, simplicity, and a seamless experience. Even pricing can convey a sense of prestige and align with their expectations.

‍Step 2: Test and iterate

‍Conduct A/B testing to see how your target audience responds to odd and even pricing. Try offering the same plan with both odd and even price endings and track the results. Analyze conversion rates, churn, and customer feedback to gain insights. Data is your friend.

‍Step 3: Highlight value at every tier

‍Odd-even pricing is most effective when paired with clear communication about your product's value. Explain the features and benefits of each plan clearly and concisely. Ensure pricing transparency to maintain customer trust. Honesty is always the best policy.

‍Step 4: Incorporate pricing into other customer journeys

‍Consider using odd pricing for promotional offers or entry-level subscriptions. This approach can create a sense of urgency and attract new customers.

Even pricing can be adopted for multi-year contracts or access to advanced features. Doing this reinforces the idea of a premium offering and long-term commitment.

‍Remember: Implementing odd-even pricing for SaaS products requires careful consideration and a data-driven approach. It's about understanding your customers, aligning your pricing with your product's value, and using psychological cues strategically.

Common mistakes to avoid with odd-even pricing

Odd-even pricing can be a powerful tool, but it's important to use it wisely. Avoid these common pitfalls to make the most of this strategy:

• Overusing odd pricing: While odd pricing can be effective, overusing it can backfire.
  
  For high-value SaaS products or enterprise solutions, too many odd prices can erode your credibility and make your brand seem less professional. Reserve odd pricing for specific situations, such as entry-level plans or promotional offers.
• Ignoring customer preferences: Not all customers respond to odd-even pricing in the same way.
  
  Consider their expectations, cultural norms, and price sensitivity. Failing to adapt your pricing strategies to your target audience can lead to confusion and missed opportunities.
• Lack of A/B testing: Let data guide your decisions. Always conduct A/B testing before implementing any significant pricing changes.
  
  Doing so will help you understand how odd and even pricing affects your conversion rates, churn, and overall revenue. Data-driven decisions are the best decisions!

‍Use Orb’s billing platform to easily experiment with pricing

We've explained what the odd-even pricing strategy is and why it's gaining traction in SaaS. But successfully implementing this strategy or any other nuanced pricing model, hinges on having a robust billing platform that can support your needs.

That's where Orbcomes in.

Orb is a done-for-you billing platform with greater extensibility. It’s designed to help SaaS businesses like yours go beyond just sending invoices with accuracy. We help enable growth through accurate billing, flexible pricing, and data-driven insights.

‍Here's how Orb can help you implement odd-even pricing and other advanced strategies:

• Experiment with pricing: Orb enables pricing agility so you can test different pricing models. Think odd-even pricing, tiered pricing, usage-based pricing, and more. You can easily adjust prices without engineering, create promotions, and analyze the impact on your revenue using SQL.
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• Maintain accuracy and transparency: Orb ensures accurate and transparent billing through its raw event architecture, no matter how complex your pricing strategy gets. We help build trust with your customers and reduce billing disputes, which is crucial for long-term success.
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• Gain data-driven insights: Orb provides detailed financial reports and analytics that help you understand the impact of your pricing strategies. Track key metrics to make informed decisions.
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• Support for usage-based billing: Orb allows you to implement usage-based pricing models. These models can be particularly effective for SaaS businesses. We allow you to charge customers based on their usage, aligning your pricing with the value they get.
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• Cater to different customer segments: Orb's flexibility allows you to tailor your pricing to different customer segments. Offer odd pricing for budget-conscious users and even pricing for premium subscribers.

Ready to unlock the full potential of your pricing strategies with Orb? Explore our flexible pricing options and find the perfect plan for your needs.