Marketing Manager Speech Sample
How 99 cents became a retailing standby
”The brilliance in advertising is 99 cents”. John Slattery as the character Roger Sterling in Mad Men (New York Times, 2009). John’s thoughts have been supported by James Eaton, Rowland H. Macy, Dave Gold and the late founder of Apple, Steve Jobs, among other business personalities. Before iTunes started in 2003, it was not obvious that people could purchase music from an online store while they had access to the same music from peer to peer networks. Mr. Jobs adapted the 99 cents concept and used it as a standard on each song that was on sale on iTunes, which later became a digital delivery for the music business.
Origin of the 99 cents pricing in the marketplace
In 1880, Rowland H. Macy advertised in a New York Times newspaper 100 pieces of ”reliable black silk” which featured a price of 99 cents. This was the first time a 99 cents advertisement was in the newspapers. Nobody knows where the concept originated, but it quickly spread in the market. The concept has also been used by Mr. Dave Gold. Mr. Gold owns the 99 Cents Only stores, with over 280 stores. The late Chief Executive of Apple Computer, Steve P. Jobs, also used the 99 cents concept widely in a bid to save the music industry from oblivion.
The Psychology of 99 Cents
The marketplace power of 99 cents seems undeniable with a number of psychological explanations given by different academics. Robert M. Schindler, a marketing professor at the Rutgers School of Business, conducted a study through which he found out that consumers perceive a 9-ending price as a round number with a small amount given back. The 99 cents concept also seems to translate to consumers as a low price compared to a whole number that translates to $1 dollar. The 99 cent concept allows the marketers to retain customers. The concept is a sweet price point for consumers who will always look out for it with every price hike. Several psychological explanations can be given to try and explain the 99 cents concept.
I. The effect of the left digit. Thomas and Morwitz (2005) came up with a hypothesis that the differences in numerical judgments are based on the left-most number. This is referred to as the left-digit anchoring effect. Retailers price their items ending in .99 rather than a 0 so as to make their products look cheaper than other retailers who give a price ending with a 0. Compare $79.99 with $80 dollars. The consumer will be affected by the most left digit which is 7 in the first pricing and 8 in the second. The first price will be translated as 70-something dollars which sounds way cheaper than 80 dollars. The prices ending in 9 will most likely get more buyers as compared to those ending with a 0.
II. The 99 cents concept also works perfectly well for items that are segregated into price bands. A price ending in .99 manages to keep the item in the lower price band and will thus attract more potential buyers. Consumers look at a price such as $99.99 dollars and think it to be more affordable since the product has not reached the $100 dollar bracket. Retailers manipulate product prices since it is the best psychological strategy used in marketing.
III. Academics have also noted that, instead of properly rounding off, consumers more often than not ignore the least significant numbers especially when the 99 cents are printed in small numbers. The consumer´s subconscious tends to ignore the figure 99 and concentrates only on the left digits.
IV. It is also suggested that retailers use this fractional pricing to control theft by employees. The fractional pricing forces the employee to open the register and cash in the sale, whereas they might be tempted to pocket the bill if the item is for a round price (Business Insider, 2012).
For over 130 years, the 99cents concept has created an illusion that has been embedded in the consumer´s mind. Although the figure is just a cent cheaper, it is used to make an item look as if it is cheaper by $1 dollar. Most consumers always fall for it and feel like they have purchased the item cheaply.
Business Insider. (2012). Your Money: Why Supermarket Prices Often End In 99 Cents. Retrieved from http://www.businessinsider.com/the-psychology-of-why-product-prices-end-in-99-cents-2012-7.
The New York Times, (2009). Bet Your Bottom Dollar On 99 Cents. Retrieved from http://www.nytimes.com/2009/02/08/weekinreview/08arango.html?_r=0.
Thomas, M & Morwitz, V. (2005). Penny Wise and Pound Foolish: The Left Digit Effect in Price Cognition. Journal of Consumer Research, Inc. Vol. 32. Retrieved from http://forum.johnson.cornell.edu/faculty/mthomas/LeftDigitEffect.pdf.
Schindler, R & Kibarian, T. (1993). Testing For Perceptual Underestimation of 9-Ending Prices, in NA – Advances in Consumer Research Volume 20, eds. Leigh McAlister and Michael L. Rothschild, Provo, UT : Association for Consumer Research, Pages: 580-585.