You will all have heard the phrase “sell the sizzle not the sausage” and you probably associate it with the sellers of snake oil and believe that, in today’s ‘information’ market the price is all-important in the hunt for the elusive sale.
Well, it is, as long as you’ve weighed it up and your proposal is no better, or even worse than the majority of your competitors. If your product, service, availability, quality, responsiveness, sales team, computer system and credit control is no better than your competitors, then it’s price for you my friend and even then, you’re on a hiding to nothing!
Examine your business and products: is there no area where your offer outshines the competition – there is, hooray! - that’s your sizzle. What you have to do now is to package that sizzle and sell it to your customers.
For example, if you deliver 3 times a day and the norm is 2, then your pitch should be based around your delivery service. Of course your price package should be in keeping with your market, but if your market has a variation of say 5%, then price at the top end and shout about the service.
If you have examined your business and you really can’t put your finger on any area where you excel, then you should consider some changes. Perhaps you can get a better product, improve your customer service or improve your stock availability.
Things that can really make a difference, but are often ignored are:
- Returns procedure – make it slicker
- Issue credits quicker,
- Resolve queries rapidly
- Phone your customer back!
Giving a cheaper price is the easiest thing to do, but it won’t make you richer, paying attention to those other areas most certainly will.
Saturday, February 24, 2007
Thursday, January 25, 2007
Here's a new source of information .......
I was scanning the net looking for new information when I came across this presentation from Karmak Training in the US. Dollars or pounds (or Euros come to that), the arithmetic works!
To download it free here Click Here!
Hope you find it interesting!
Crockett
To download it free here Click Here!
Hope you find it interesting!
Crockett
Friday, January 12, 2007
5 things you can do to improve your profitability
1. Have a pricing strategy. It is surprising how many companies don’t have a proper pricing strategy and handle it in a very ad hoc way. Have a look at the article posted on December 9th 2006 called ‘Three Ways of Pricing’. This expands on a) cost plus – the least profitable way in my opinion, b) competitive – important to know where you’re pitched and c) value – where you price up your whole proposition and optimise your profit.
2. Promote added value. If you operate in an environment where you must promote to keep customers interested and this is generally in a repeat B2B market, then use value added rather than discount. Use BOGOF (buy one, get one free) deals if you can get or afford them; these are really strong and don’t affect your normal shelf or list price. Supermarkets do it all the time to good effect. Buy 2 get 1 free works as well, as does extra fill products – “20% extra free” means just that i.e. selling 600 ml for the price of 500 ml and is a much stronger offer than 20% off, not least because you know it’ll be passed on at retail.
3. Keep control of your price list. Never, ever panic! You can’t win every sale - the laws of economics won’t let you. A knee-jerk reaction to lower price because of a competitors activity won’t get you any extra sales over the medium term, but it will certainly get you lower profits. Don’t forget, on a 50% margin, if you sell 10 units at £1, you’ll make £5; if you drop 10%, you’ve got to sell 13 units to stand still! Personally, I'd lose the one sale and sell the other 9 at £1. When this happens, sit back, have a cup of coffee and plan your market research – talk to all your customers – you never know, you may be £0.10 cheaper than the competition and be able to make a bit more.
4. Bonus your sales people on cash gross margin. Don’t be tempted to reward on percentage GM, you sales could take a dive. If you do cash GM then your sales people are not just discounting with your money, it’s theirs as well. So, back to the 10 units at £1. You want growth, so you target 11 units at £1 at 50% GM which equals £5.50 cash margin. If you sales people want to discount 10% they’ll have to sell 14 units to hit their target before they get a cent! In reality, the need for heavy discounting will tend to reduce.
5. Watch your business. We’ve been talking about gross margins here, but real profit is after expenses are paid. There are not many ways to influence your net profits: a) sell at a higher price, b) buy, or manufacture at a lower price, c) lower your other non-variable costs. Unless you are Tesco (who’s stated aim is to sell as low as it can, rather than for as much as it can get) you should try to do all of these, all of the time - keep your eye on it constantly.
Have a look at jdsblog.com for another view on pricing - click here
---------------------------------
Would you like to know the "insider secrets" of controlling your finances even better, so you'll reach the goals you've set?
Did you know that every business activity creates both problems and opportunities every week? A business is like a living entity, constantly developing, forever creating SOMETHING — and always also something ELSE than what you consciously want it to produce. To find out what the experts know Click Here!
2. Promote added value. If you operate in an environment where you must promote to keep customers interested and this is generally in a repeat B2B market, then use value added rather than discount. Use BOGOF (buy one, get one free) deals if you can get or afford them; these are really strong and don’t affect your normal shelf or list price. Supermarkets do it all the time to good effect. Buy 2 get 1 free works as well, as does extra fill products – “20% extra free” means just that i.e. selling 600 ml for the price of 500 ml and is a much stronger offer than 20% off, not least because you know it’ll be passed on at retail.
3. Keep control of your price list. Never, ever panic! You can’t win every sale - the laws of economics won’t let you. A knee-jerk reaction to lower price because of a competitors activity won’t get you any extra sales over the medium term, but it will certainly get you lower profits. Don’t forget, on a 50% margin, if you sell 10 units at £1, you’ll make £5; if you drop 10%, you’ve got to sell 13 units to stand still! Personally, I'd lose the one sale and sell the other 9 at £1. When this happens, sit back, have a cup of coffee and plan your market research – talk to all your customers – you never know, you may be £0.10 cheaper than the competition and be able to make a bit more.
4. Bonus your sales people on cash gross margin. Don’t be tempted to reward on percentage GM, you sales could take a dive. If you do cash GM then your sales people are not just discounting with your money, it’s theirs as well. So, back to the 10 units at £1. You want growth, so you target 11 units at £1 at 50% GM which equals £5.50 cash margin. If you sales people want to discount 10% they’ll have to sell 14 units to hit their target before they get a cent! In reality, the need for heavy discounting will tend to reduce.
5. Watch your business. We’ve been talking about gross margins here, but real profit is after expenses are paid. There are not many ways to influence your net profits: a) sell at a higher price, b) buy, or manufacture at a lower price, c) lower your other non-variable costs. Unless you are Tesco (who’s stated aim is to sell as low as it can, rather than for as much as it can get) you should try to do all of these, all of the time - keep your eye on it constantly.
Have a look at jdsblog.com for another view on pricing - click here
---------------------------------
Would you like to know the "insider secrets" of controlling your finances even better, so you'll reach the goals you've set?
Did you know that every business activity creates both problems and opportunities every week? A business is like a living entity, constantly developing, forever creating SOMETHING — and always also something ELSE than what you consciously want it to produce. To find out what the experts know Click Here!
Sunday, January 07, 2007
Meetings, Meetings, Meetings
Do you ever wonder where your time has gone? I don’t, I know where my time has gone! Most of it’s wasted in never ending meetings that rarely achieve anything except to establish the date and time of the follow-up meeting.
First there are weekly management meetings with massively long agendas that seek to resolve every problem the company has ever encountered, but actually cause more by setting impossible tasks and goals in impossible timeframes. However, these can go on all day and sometimes longer, although lunch is invariably supplied if you’re not too stressed to eat it.
Then there are the inter-departmental meetings, designed to progress the impossible tasks set at the management meetings. Nothing is ever achieved at these, as no one wants to be held accountable at the next management meeting!
Next come the ‘project’ meetings to plan and monitor the flavour-of-the-month projects and initiatives. First of all, someone is elected to take the blame and appointed project leader. Everyone has to take their turn at this unless you are a superb politician who can deflect all the slings and arrows of outrageous fortune. You can then pass this poison chalice to another unfortunate whilst being convincingly disappointed that you were unable to grasp this opportunity because of your root canal problem or acute alcoholism (brought on by weekly management meetings).
Then there are the scheduled ad hoc meetings (as opposed to the truly ad hoc meetings) which are planned to the very last detail and have the sole purpose of shifting the blame for something to someone other than the originator of the meeting. These work extremely well for the alcoholic shyster mentioned in the previous paragraph!
Finally, unless you know differently, are the truly ad hoc meetings. Generally engendered by a real and pressing issue that requires immediate resolution, these often work well and are arguably the only meetings worth having.
Here are some suggestions:
1. Have regular management meetings designed to inform and that set a strategy for problem solving rather than become a forum for allocating blame.
2. Start with a discussion about sales performance, which will generally draw-out the majority of opportunities and issues facing the business.
3. Have meetings with short agendas, but send clear and prompt minutes so everyone knows what was agreed.
4. Deal with problems one at a time rather than all at once.
5. Use truly ad hoc meetings sensibly and constructively and ban political ones.
6. Ensure that everyone is clear about their responsibilities, which will go a long way towards removing the inter-departmental rivalries.
7. Avoid a blame culture by welcoming new ideas and being open-minded and understanding that the occasional failure is acceptable and expected and serve to demonstrate that people are working outside of their comfort zone.
Without doubt, some meetings are necessary, but short meetings are always more effective than long ones. In a three-hour meeting you will get 70% done in the first hour, 30% in the second and nothing useful in the third - except lunch!
First there are weekly management meetings with massively long agendas that seek to resolve every problem the company has ever encountered, but actually cause more by setting impossible tasks and goals in impossible timeframes. However, these can go on all day and sometimes longer, although lunch is invariably supplied if you’re not too stressed to eat it.
Then there are the inter-departmental meetings, designed to progress the impossible tasks set at the management meetings. Nothing is ever achieved at these, as no one wants to be held accountable at the next management meeting!
Next come the ‘project’ meetings to plan and monitor the flavour-of-the-month projects and initiatives. First of all, someone is elected to take the blame and appointed project leader. Everyone has to take their turn at this unless you are a superb politician who can deflect all the slings and arrows of outrageous fortune. You can then pass this poison chalice to another unfortunate whilst being convincingly disappointed that you were unable to grasp this opportunity because of your root canal problem or acute alcoholism (brought on by weekly management meetings).
Then there are the scheduled ad hoc meetings (as opposed to the truly ad hoc meetings) which are planned to the very last detail and have the sole purpose of shifting the blame for something to someone other than the originator of the meeting. These work extremely well for the alcoholic shyster mentioned in the previous paragraph!
Finally, unless you know differently, are the truly ad hoc meetings. Generally engendered by a real and pressing issue that requires immediate resolution, these often work well and are arguably the only meetings worth having.
Here are some suggestions:
1. Have regular management meetings designed to inform and that set a strategy for problem solving rather than become a forum for allocating blame.
2. Start with a discussion about sales performance, which will generally draw-out the majority of opportunities and issues facing the business.
3. Have meetings with short agendas, but send clear and prompt minutes so everyone knows what was agreed.
4. Deal with problems one at a time rather than all at once.
5. Use truly ad hoc meetings sensibly and constructively and ban political ones.
6. Ensure that everyone is clear about their responsibilities, which will go a long way towards removing the inter-departmental rivalries.
7. Avoid a blame culture by welcoming new ideas and being open-minded and understanding that the occasional failure is acceptable and expected and serve to demonstrate that people are working outside of their comfort zone.
Without doubt, some meetings are necessary, but short meetings are always more effective than long ones. In a three-hour meeting you will get 70% done in the first hour, 30% in the second and nothing useful in the third - except lunch!
Monday, January 01, 2007
5 Good Reasons to take the ‘Price Negotiation’ Burden from Your Sales Team
If you are working in a traditional repeat-business company, you probably have a field based sales team. If so, the team are probably calling on the same customers on a monthly (maybe more frequent) basis. Because your sales team is well trained and enthusiastic, as well as servicing their existing customer base, they will be trying to follow-up new leads and find new customers by networking with other sales people, searching directories and asking existing customers who their main competitors are.
In a nutshell, they’re pretty busy!
There is also a good chance that they have some latitude to negotiate prices; I don’t mean customer terms here, I mean the price of individual items. The customer asks, “how much are your widgets?” and your sales guy replies “£11.29”. The customer then says “Acme Widgets is doing them for £10.99”, so your guy matches the price and walks away with the order.
Well, that’s a result isn’t it?
I don’t know, because, just like you, I don’t know the price at which Acme is selling widgets!
Here are 5 good reasons why your sales team shouldn’t do it:
1. Because if the customer can buy from Acme at £10.99 then, a) your price is too high; b) your product is better, c) your service is better, d) your availability is better. If it’s a), then your prices need reviewing generally and papering over the cracks with one customer won’t resolve the wider issue and not all customers will tell you, they’ll just buy elsewhere. If it’s b), c) or d) then you deserve a premium don’t you?
2. Because they don’t really know the Acme price, only the customer’s version of it and buyers always tell the truth don’t they? What’s needed here is some properly structured market research rather than one buyers opinion.
3. Because by freeing the sales team from price negotiation, you enable them to get back to real selling; for example, explaining the company’s proposition and waxing lyrical about your service, quality, availability, delivery frequency, superb sales team, extensive product range etc. Let’s face it, Acme probably doesn’t have them in stock anyway and if it does, it’ll be next Friday before it can deliver them.
4. Because the customer may not be set-up on the right deal. Sales people can be dilatory about reviewing customer terms – it’s admin and their job is selling, right? If your widgets and Acme’s are the same and all other things are equal, it may be time to review customer terms.
5. Because it wastes time and effort. Customers will soon understand that your prices are competitive and the sales team has no price flexibility, so that game has gone away, leaving more time to discuss new ranges and extensions, this month’s specials and new product launches.
The sales team won’t like it much to start with, but the good ones will soon see the benefits as will the company from the extra sales at higher margins that will result from it.
Happy New Year!
Crockett. January 2007.
Do you wish you could increase prices, but are afraid you will lose customers? The answers may be right here: Please tell me how to increase prices without losing sales!
In a nutshell, they’re pretty busy!
There is also a good chance that they have some latitude to negotiate prices; I don’t mean customer terms here, I mean the price of individual items. The customer asks, “how much are your widgets?” and your sales guy replies “£11.29”. The customer then says “Acme Widgets is doing them for £10.99”, so your guy matches the price and walks away with the order.
Well, that’s a result isn’t it?
I don’t know, because, just like you, I don’t know the price at which Acme is selling widgets!
Here are 5 good reasons why your sales team shouldn’t do it:
1. Because if the customer can buy from Acme at £10.99 then, a) your price is too high; b) your product is better, c) your service is better, d) your availability is better. If it’s a), then your prices need reviewing generally and papering over the cracks with one customer won’t resolve the wider issue and not all customers will tell you, they’ll just buy elsewhere. If it’s b), c) or d) then you deserve a premium don’t you?
2. Because they don’t really know the Acme price, only the customer’s version of it and buyers always tell the truth don’t they? What’s needed here is some properly structured market research rather than one buyers opinion.
3. Because by freeing the sales team from price negotiation, you enable them to get back to real selling; for example, explaining the company’s proposition and waxing lyrical about your service, quality, availability, delivery frequency, superb sales team, extensive product range etc. Let’s face it, Acme probably doesn’t have them in stock anyway and if it does, it’ll be next Friday before it can deliver them.
4. Because the customer may not be set-up on the right deal. Sales people can be dilatory about reviewing customer terms – it’s admin and their job is selling, right? If your widgets and Acme’s are the same and all other things are equal, it may be time to review customer terms.
5. Because it wastes time and effort. Customers will soon understand that your prices are competitive and the sales team has no price flexibility, so that game has gone away, leaving more time to discuss new ranges and extensions, this month’s specials and new product launches.
The sales team won’t like it much to start with, but the good ones will soon see the benefits as will the company from the extra sales at higher margins that will result from it.
Happy New Year!
Crockett. January 2007.
Do you wish you could increase prices, but are afraid you will lose customers? The answers may be right here: Please tell me how to increase prices without losing sales!
Sunday, December 24, 2006
Happy Christmas!
The following comes from a review by Martin Fagan of Squaremilebookstore.com of the book, The Real Warren Buffett, by James O'Loughlin.
Whilst this is not about pricing, there are a couple of bits in it that I think are interesting, the first being the leaky boat quote and the other the price/value principle. It reminds me that whatever price you charge, it should represent value to your customer; that way, he’ll come back.
Merry Christmas!
Crockett
---------------------------------
Warren Buffett is, after Bill Gates, the world’s richest man. In 1950, from delivering papers and running pinball machines in barbers’ shops in Omaha, Nebraska, Buffett had $9,800 in capital, which is the sole basis of his subsequent wealth. He is now worth over $20 billion (and counting), but he still lives in a modest house in Omaha. Had you invested $10,000 in Berkshire-Hathaway (his company-cum-investment fund) when he took over in 1965, you would have about $22,000,000 today.
Buffett’s philosophy and outlined principles on investing hold good – regardless of what type of investor you consider yourself as. First among them is the idea that price is what you pay and value is what you get - and if you're a clever investor, the former will always be less than the latter.
One of his sayings is: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks”.
---------------------------------
You can get Warren Buffett’s book, The Real Warren Buffett, at squaremilebookstore.com, which is where I got this information.
If you want to learn how to increase your prices and increase sales at the same time Click Here!
Whilst this is not about pricing, there are a couple of bits in it that I think are interesting, the first being the leaky boat quote and the other the price/value principle. It reminds me that whatever price you charge, it should represent value to your customer; that way, he’ll come back.
Merry Christmas!
Crockett
---------------------------------
Warren Buffett is, after Bill Gates, the world’s richest man. In 1950, from delivering papers and running pinball machines in barbers’ shops in Omaha, Nebraska, Buffett had $9,800 in capital, which is the sole basis of his subsequent wealth. He is now worth over $20 billion (and counting), but he still lives in a modest house in Omaha. Had you invested $10,000 in Berkshire-Hathaway (his company-cum-investment fund) when he took over in 1965, you would have about $22,000,000 today.
Buffett’s philosophy and outlined principles on investing hold good – regardless of what type of investor you consider yourself as. First among them is the idea that price is what you pay and value is what you get - and if you're a clever investor, the former will always be less than the latter.
One of his sayings is: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks”.
---------------------------------
You can get Warren Buffett’s book, The Real Warren Buffett, at squaremilebookstore.com, which is where I got this information.
If you want to learn how to increase your prices and increase sales at the same time Click Here!
Saturday, December 23, 2006
Why £0.99 is Better Than £1.00!
I found reference to this on Dollars and Sense at www.mimiran.blogspot.com
Mark Roth, Sunday, December 17, 2006
Today's Pittsburgh Post-Gazette features patterned sweaters at Kohl's for $19.99, women's jeans at Kmart for $16.99 and a turtleneck at Macy's for $8.99.
The 99-cent pitch isn't limited to apparel, of course. There's a Nikon camera at Circuit City for $129.99, a remote-controlled helicopter at Radio Shack for $69.99 and even humble work gloves at Sears for $14.99.
In classical economic theory, consumers make rational choices based on price comparisons and other objective factors. So any shopper who's looking at a $49.99 cell phone knows he's in effect paying $50, right?
Wrong, say business researchers who have studied this issue.
Not only do people make all kinds of purchasing decisions that aren't rational, they say, but they're particularly susceptible to the kind of offers cited above, which are known in the trade as "9-ending" or "just below" prices.
Studies show the technique not only influences people's perceptions of prices, but boosts their buying.
In one of the most telling experiments, Rutgers University professor Robert Schindler and his colleagues did a real-life test with a women's clothing catalog 10 years ago.
The clothing line normally advertised items ending in 88 cents. For the experiment, the researchers divided the 90,000 customers into three groups.
One group got catalogs with the traditional prices, one got prices ending in .00 and one got prices ending in .99.
The 99-cent catalog significantly outperformed the .00 one, Dr. Schindler said, recording 8 percent higher sales even though the average price decrease was only three-hundredths of a percent.
Standard pricing formulas say that retailers will get a 20-percent increase in sales for a 10-percent drop in prices, yet the 99-cent approach generated almost half as large an increase in sales for a price cut that was minuscule.
Why does this happen? Researchers give two basic reasons: the "left digit effect" and a "right digit signal."
Manoj Thomas, a Cornell University business professor, has done experiments with graduate students showing that the biggest impact of 99-cent pricing comes when it changes the leftmost digit in the price -- $19.99 vs. $20, for instance, as opposed to $3.49 vs. $3.50.
"Generally, it can be said that this happens because we read from left to right," Dr. Thomas said, and we place extra importance on the first number we see.
When he asked students to compare the prices of $99.99 with $150 and then compare $100 with $150, they rated the gap between $99.99 and $150 as being significantly larger, even though there was only a penny's difference.
The "right digit signal" is slightly different, because it tells consumers that the item in question is a bargain.
A 99-cent ending "makes the price 'feel' less," Dr. Schindler said, "and it goes deeper than just appearances. If you give people two ads for a blouse, one priced at $22 and one at $21.99, people are more likely to judge the $21.99 item as being on sale.
"And there's an emotional kick to getting a discount that makes a difference to consumers."
Retailers also look at 99-cent pricing from the opposite direction, said Britt Beemer, chairman of America's Research Group, which interviews up to 15,000 people a week to gauge consumer behavior and marketing techniques.
"Let's say your item is $49.99 vs. $49," Mr. Beemer said.
"There is no perceived difference for most consumers between the two. The consumer looks at the dollar number and forgets the right hand digits -- I would guess that only one of four consumers looks at those right hand digits."
From the seller's standpoint, then, the $49.99 price can yield them almost one extra dollar for each item, with no perceived difference in the price on the part of the buyer.
No one knows exactly who invented 99-cent pricing or when it began.
One story, Dr. Thomas said, is that store owners in the 1930s who didn't trust their clerks created this pricing so the clerk would have to open the till to give change to the customer, rather than being able to quietly pocket the bills without the owner finding out.
A British consumer researcher, Rachel Bowlby of University College London, said she had heard an almost identical story in the United Kingdom, except that the organization credited with the invention was the charitable group Oxfam.
Once it was established, 99-cent pricing became a deeply ingrained part of consumer culture in the United States and much of Europe, so that retailers that wanted to appear distinctive had to find ways to vary the 99-cent ending.
Boscov's, the chain that recently established a presence in Pittsburgh, does it by advertising 97-cent endings. And Wal-Mart founder Sam Walton pushed for unusual cents-endings to his stores' prices to distinguish them from those at other retailers.
Mr. Walton's policy of promoting such prices as $8.44 or $3.17, Dr. Schindler wrote, "may communicate to consumers that no fine tuning was done at all -- the prices were cut 'right to the bone.' "
The 99-cent approach is not global, however.
In his native country of India and in much of Asia, Dr. Thomas said, consumers are less likely to see such numbers because the governments still set many retail prices.
One Drexel University study showed that Polish people who had grown up under the Soviet regime preferred round-number prices to 99-cent ones.
"The Polish respondents perceived retailers using [99-cent prices] as offering them an unfair price and also trying to deceive them," the study concluded.
And in China, the researchers said, 99-cent prices would be acceptable, but woe to the retailer whose prices end in the unlucky number 4, which phonetically sounds like the word for death.
If our culture has taught us that 99-cent prices equal a bargain, then certain retailers have reason to avoid them like the plague.
One Ohio State University study, for instance, found that menu prices at upscale restaurants typically end in round numbers because that speaks of "quality" more than "discount."
The same thing shows up at upscale retailers such as Neiman Marcus, where a current designer trunk sale is offering linen pants, tank dresses and cashmere sweaters that all end in fat round numbers.
"I think this is all consistent with the idea that odd prices act as an information-processing reduction, indicating a product is a deal," said researcher Russell Winer of New York University.
But if you really want a bargain, Dr. Winer added, it's good to remember that "just because the price ends with 99 cents, it doesn't mean it's a really good deal."
(Mark Roth can be reached at mroth@post-gazette.com or at 412-263-1130.)
To find out how to make your prices irresistible Click Here!
Mark Roth, Sunday, December 17, 2006
Today's Pittsburgh Post-Gazette features patterned sweaters at Kohl's for $19.99, women's jeans at Kmart for $16.99 and a turtleneck at Macy's for $8.99.
The 99-cent pitch isn't limited to apparel, of course. There's a Nikon camera at Circuit City for $129.99, a remote-controlled helicopter at Radio Shack for $69.99 and even humble work gloves at Sears for $14.99.
In classical economic theory, consumers make rational choices based on price comparisons and other objective factors. So any shopper who's looking at a $49.99 cell phone knows he's in effect paying $50, right?
Wrong, say business researchers who have studied this issue.
Not only do people make all kinds of purchasing decisions that aren't rational, they say, but they're particularly susceptible to the kind of offers cited above, which are known in the trade as "9-ending" or "just below" prices.
Studies show the technique not only influences people's perceptions of prices, but boosts their buying.
In one of the most telling experiments, Rutgers University professor Robert Schindler and his colleagues did a real-life test with a women's clothing catalog 10 years ago.
The clothing line normally advertised items ending in 88 cents. For the experiment, the researchers divided the 90,000 customers into three groups.
One group got catalogs with the traditional prices, one got prices ending in .00 and one got prices ending in .99.
The 99-cent catalog significantly outperformed the .00 one, Dr. Schindler said, recording 8 percent higher sales even though the average price decrease was only three-hundredths of a percent.
Standard pricing formulas say that retailers will get a 20-percent increase in sales for a 10-percent drop in prices, yet the 99-cent approach generated almost half as large an increase in sales for a price cut that was minuscule.
Why does this happen? Researchers give two basic reasons: the "left digit effect" and a "right digit signal."
Manoj Thomas, a Cornell University business professor, has done experiments with graduate students showing that the biggest impact of 99-cent pricing comes when it changes the leftmost digit in the price -- $19.99 vs. $20, for instance, as opposed to $3.49 vs. $3.50.
"Generally, it can be said that this happens because we read from left to right," Dr. Thomas said, and we place extra importance on the first number we see.
When he asked students to compare the prices of $99.99 with $150 and then compare $100 with $150, they rated the gap between $99.99 and $150 as being significantly larger, even though there was only a penny's difference.
The "right digit signal" is slightly different, because it tells consumers that the item in question is a bargain.
A 99-cent ending "makes the price 'feel' less," Dr. Schindler said, "and it goes deeper than just appearances. If you give people two ads for a blouse, one priced at $22 and one at $21.99, people are more likely to judge the $21.99 item as being on sale.
"And there's an emotional kick to getting a discount that makes a difference to consumers."
Retailers also look at 99-cent pricing from the opposite direction, said Britt Beemer, chairman of America's Research Group, which interviews up to 15,000 people a week to gauge consumer behavior and marketing techniques.
"Let's say your item is $49.99 vs. $49," Mr. Beemer said.
"There is no perceived difference for most consumers between the two. The consumer looks at the dollar number and forgets the right hand digits -- I would guess that only one of four consumers looks at those right hand digits."
From the seller's standpoint, then, the $49.99 price can yield them almost one extra dollar for each item, with no perceived difference in the price on the part of the buyer.
No one knows exactly who invented 99-cent pricing or when it began.
One story, Dr. Thomas said, is that store owners in the 1930s who didn't trust their clerks created this pricing so the clerk would have to open the till to give change to the customer, rather than being able to quietly pocket the bills without the owner finding out.
A British consumer researcher, Rachel Bowlby of University College London, said she had heard an almost identical story in the United Kingdom, except that the organization credited with the invention was the charitable group Oxfam.
Once it was established, 99-cent pricing became a deeply ingrained part of consumer culture in the United States and much of Europe, so that retailers that wanted to appear distinctive had to find ways to vary the 99-cent ending.
Boscov's, the chain that recently established a presence in Pittsburgh, does it by advertising 97-cent endings. And Wal-Mart founder Sam Walton pushed for unusual cents-endings to his stores' prices to distinguish them from those at other retailers.
Mr. Walton's policy of promoting such prices as $8.44 or $3.17, Dr. Schindler wrote, "may communicate to consumers that no fine tuning was done at all -- the prices were cut 'right to the bone.' "
The 99-cent approach is not global, however.
In his native country of India and in much of Asia, Dr. Thomas said, consumers are less likely to see such numbers because the governments still set many retail prices.
One Drexel University study showed that Polish people who had grown up under the Soviet regime preferred round-number prices to 99-cent ones.
"The Polish respondents perceived retailers using [99-cent prices] as offering them an unfair price and also trying to deceive them," the study concluded.
And in China, the researchers said, 99-cent prices would be acceptable, but woe to the retailer whose prices end in the unlucky number 4, which phonetically sounds like the word for death.
If our culture has taught us that 99-cent prices equal a bargain, then certain retailers have reason to avoid them like the plague.
One Ohio State University study, for instance, found that menu prices at upscale restaurants typically end in round numbers because that speaks of "quality" more than "discount."
The same thing shows up at upscale retailers such as Neiman Marcus, where a current designer trunk sale is offering linen pants, tank dresses and cashmere sweaters that all end in fat round numbers.
"I think this is all consistent with the idea that odd prices act as an information-processing reduction, indicating a product is a deal," said researcher Russell Winer of New York University.
But if you really want a bargain, Dr. Winer added, it's good to remember that "just because the price ends with 99 cents, it doesn't mean it's a really good deal."
(Mark Roth can be reached at mroth@post-gazette.com or at 412-263-1130.)
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