Showing posts with label Elimination of penny. Show all posts
Showing posts with label Elimination of penny. Show all posts

Friday, February 24, 2012

Eliminating the penny could shut down the junk mail industry

When is the last time you saw anything in a junk mail catalog that didn’t end in 99 cents?  Well maybe sometime they fudge with 95 cents but that’s pretty rare.  I spent 35 years in this business as a data broker and consultant and when I first started it was impressed on me the value of using the word “free” and never using a rounded off price.  And it’s not only junk mail; traditional retail establishments use the same ploy.

Gasoline prices end in 99 cents.  Dollar stores even sell many of their products at 99 cents. has a 99 cent Lady Gaga album and authors sell their e-books for 99 cents.  The Dish Network has 99 cent movies and one game maker was selling its games for 99 cents.  Some companies have an offer to ship your merchandise for only 99 cents and one 99 cent chain is in the middle of a huge buyout that will no doubt end in a selling price that includes 99 cents somewhere.

Do they think we’re stupid?  No, so thought David Gold in 1982 when he opened his first 99 Cents Only store in California.  The move was prompted when he tried using the 99 cent approach to selling wines in his liquor store he wanted to move, and friends told him he had a concept that should be expanded.  Dollar and 99 cents stores are now found in most cities around the country.  One of Gold’s first promotions was selling a limited amount of TVs for 99 cents.

Wikipedia calls it “psychological pricing,” which it is by using odd prices like 99 cents with the theory that it increases demand.  I doubt that and firmly believe that if you sold an item for $5.00 instead of $4.99, consumers would buy it for the sheer novelty.  At least until the impact of the change wore off.  From a study done back in the late 1990s, it was found that 60 percent of advertised prices ended in the digit 9, 30 percent 5, 7 percent in a zero.

Just think of the money that could be saved by rounding prices off.  Without all the 99 cent digits gone, catalogs could be smaller or contain more products and junk mail could lower prices even more.  Gas pumps could be narrower without the .99 extension and fuel prices could be lowered.  Retail outlets could use smaller signs in stores without all the .99s meaning they could hold more sales with more price reductions. 

In 1970 when I entered the junk mail business they were already using the 99 cent price calculation so David Gold might have gotten his idea from receiving one of their catalogs.  In case you don’t know, the purpose of the junk mail offer is to “get your attention,” then get you “involved” so you end up buying something.  It was determined early on that a round figure was not attention-getting, thus, the move to just one cent lower than the round figure. 

You might wonder, had the industry gone with the round figure, just how much more profitable could it have been.

Typical Victorias Secret ad

On the other hand, junk mail companies sell your names from their mailing list at round figures.  It’s almost as if they think the buying public is dumb enough to fall for the 99 cent subterfuge but other junk mailers they are selling their lists to are not.  Based on my 35 years in the business, I would take exception with that.  For perspective, the lingerie catalog Victorias Secret sells its customer names for a base price of $115 per thousand names.  This can increase dramatically to over $200 per thousand names if junk mailers want things like age, income, etc.

My gut tells me that the public has seen this 99 cent thing for so long that it doesn’t do anything to incite them to make a purchase anymore.  However, when you have developed a habit like this based on, hopefully, some logic that was inspired years ago, you’re not likely to dump the idea without new logic.  Junk mailers are much busier at this time trying to figure out how to wring even more bucks out of your names; they gross over $4 billion annually now.

Read more here about eliminating the penny.

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