Monday, November 30, 2009

The 99¢ Effect and Other Saver Thoughts

My article started out about pricing with regard to saving, particularly how 99¢ is such a popular price, a price ending, anyway. As I "scribbled" my streams of consciousness—besides 99¢—thoughts also included tenths of cents still anachronistically attached to gasoline per-gallon prices, coupons, before/after price changes indicated in print ads, sales taxes that no advertiser includes, and baked goods pricing.

As the seasonal buying rush is spiking around this time, this might be an appropriate time to discuss the psychology of pricing at 99¢. Dr. Robert Schindler, Professor of Marketing at Rutgers has been cited as an expert about the pricing psychology. A couple of papers specifically address 99 as price endings, which you can find links to at his faculty website. An educational resource that splits the pricing psychology is at Ohio State University Extension "Fact Sheet". The paper discusses use of 99¢ rather than $1, and 49¢ rather than 50¢. As for news, blog articles, and forums regarding 99¢, googling for 99 cents effect will yield lots of results for those mildly curious to those who want to turn in a research paper for a grade. (No, I'm not listing all my sources I ran across. Students need to do their own finding and sifting.)

One topic related to 99¢ that has intrigued me over the years has been the price of gasoline. I'm not attuned to non-US prices, so I'm just talking about stateside per-gallon listings. It's had that pesky decimal point to indicate tenths of a cent per gallon for as long as I can remember—let's say when gas was under 49.9¢ a gallon. Even when it's risen to over $4.00 a gallon, and has receded to currently over two and under three dollars (I know, mushy spread—so my article doesn't risk becoming obsolete overnight), the stations insist on keeping that nine-tenths of a cent price appendage. I say, kill the fraction of a cent pricing and be done with it! Don Boudreaux's blog article from 2006 discusses gasoline pricing in even closer detail than just the nine-tenths cent.

Coupons! With this economy, I sense a lot more people are using them. It can get exhausting sifting through piles, deciding which ones to save, which to use for which trip, how to sort them so they don't expire before getting a chance to use them. Sunny side up—good value coupons for items you use AND go on sale at the same time! Not so sunny—coupons for items you can't find, are the wrong packaging, expire about a week before you remember you had them, and have expiration dates a day before you regularly shop. (And you momentarily didn't extend your mental calendar out far enough.)

One thing that I've always viewed wryly is the newspaper or store trumpeting the aggregate value of coupons in the packet I just received. "Save $90!" "$199.40 coupon savings!" These statements never come with estimated purchase totals if you truly bought all the items required to save as much as they claim. Hmmm, who would buy EVERYTHING in the advertising packet anyway?

Markdowns and markups get such different treatments in print ads. If an item's price goes up, and it's a fresh ad, you never get to view the "before" price. If a hardcopy print ad (or menu) price goes up, there's usually a huuuuuge splotch that obliterates what the former price was. But you know it went up! In contrast, if a print ad shows a price decrease, the older price is visible, with a wimpy, usually horizontal or diagonal strikethrough, then the new price listed nearby. Mustn't miss the potential savings!

What about a menu price decrease? I'm guessing it happens infrequently. If price decreases occur, I think eateries print up new submenus. Maybe they create new dishes with more customer-friendlier prices. Lots of discount coupons have been appearing in the newspaper and mail as well. And more and longer happy hours.

Advertisers seem to almost always ignore state sales taxes as they entice us to spend. The oddest and imho, most dishonest ads I find are the ones that practically declare you can buy an item for the exact price they advertise. The ones that most come to mind are fast food, cars, and services (utilities). Only $49.99 a month! Only $9.99! Only 99¢! Okay, maybe "Only $1!" Right.

Another advertising strategy I find entertaining is the breaking down of price per unit. Something that's only so much per month can get quite expensive when extended out to a year. Say you get cable for $29.99 a month (special deal?). (There's that pesky 99¢-effect pricing again!) Well, in a year, that comes to $359.88 a year. If they advertise it as a per-day cost, it sounds a lot less costly—98.6¢ a day, less than a dollar a day! It's a bit interesting to me that not more companies are pushing daily-cost unit-pricing instead of monthly-cost. Maybe that's coming. Oh, let's also remember about taxes that go on top of the advertised prices.

Speaking of per-unit pricing transitions, remember when cakes and pies sold by the whole units? They still sell them that way, but it seems they've gotten so expensive that the new units are by the slice. In the case of cakes, cupcakes have also become unit pricings. Ahhh, cupcake prices have now approached the price of what whole cakes used to cost. (A way to return to less expensive cakes is to bake and frost your own.)

1 comment:

lmk said...

I heard the following story--"the advent of the cash register, invented in 1879 by a Dayton bar owner (according to the Museum of American Heritage), allowed merchants to thwart pilfering clerks by charging a penny less then a full dollar amount, thereby forcing cashiers to open the register to give change to a customer."

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