Price Point - Island of Sanity

Island of Sanity

Annals of Enterprise

Price Point

Last Christmas I was in a department store and came across an item with a sign above it reading, "On sale: $99.99. Regular price: $109.99".

I can't help but wonder: Is $109.99 really the regular price? When was the last time you saw anything for sale with a price like $109.99? Retailers routinely set prices that are just a little bit less than some nice round number. Almost nothing costs $10, it is always $9.95. If the numbers get big enough, they may quit worrying about the cents, so instead of $500 they might charge $499 or $495. But $109.99? I doubt it.

Which I guess brings up the bigger question: Does this work? Personally, when I see a price like $9.99, I just automatically say to myself "ten dollars". Are there really people who say, "$9.99 ... yes, that's a reasonable price, I think I'll buy that. But the last store I looked at wanted ten bucks! Wow, that was way too much."

A related thought: Every now and then someone suggests that we eliminate the penny, on the grounds that its value is so small that it is just not worth the cost of minting them or the trouble of handling them any more. And the first argument I always hear against it is: But that would cost consumers money! Everything that presently costs $9.99 or $14.99 would go up in price by one cent!

The most obvious reply to this is: So what? Even if everything you bought went up in price by one cent, how much would that cost you? Do you buy as many as 100 separate items each month? Then it would cost you $1 per month? $2 a month would be pushing it. And presumably there would be savings all around from eliminating the near-worthless coin -- reduced costs to banks and retailers from no longer having to handle them, savings that consumers would share.

But another reply is: Actually, even ignoring the "handling" savings, it would probably save consumers money. Retailers firmly believe, rightly or wrongly, that more people will buy a product if it is a shade less than $10 than will buy it if it cost a full $10. So if the penny was eliminated, it is likely that most retailers would change the price from $9.99 down to $9.95, not up to $10.00. If just 20% of retailers did this, the net cost to the consumer would be zero. (Of course, even if all retailers did this, the net savings to the consumer would be maybe $5 or $10 per month.)

© 2002 by Jay Johansen


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