Monday, August 3, 2009

The Value of $19.95

By Philip Wocken

We all know the importance of price in consumers’ purchasing decisions. You look at any product, it seems, and it’s $49.95, $69.99, etc. Those few pennies seem to make such a difference in consumers’ minds. Today I wanted to reflect specifically on the pricing formula used in the “As Seen On TV” commercials.

Every time you see Vince Shlomi (AKA the “ShamWOW! Guy”) or the late Billy Mays (yes, he will still be on TV), you can be sure that the product is available for $14.95, $19.99, or “4 easy installments of $19.99.” In fact, in Discovery Channel’s series “Pitchmen,” Billy Mays stated in Episode 1 that all of the products he sells are $19.99. After you finish shaking your head at the silly “bonus gifts” that they throw in “ABSOLUTELY free,” take a minute or two to reflect on this strategy. For years, companies like Telebrands, who brings you products like Pedi Paws and Stick Up Bulb, have made millions of dollars every year – one $20 bill at a time. But what’s so magical about staying under $20?

For some of the bigger ticket items, like a Time Life CD collection that might normally be $100, it’s a tough sell in 30 seconds. However, if the consumer quickly sees “5 easy payments of $20,” the smaller denomination psychologically provides more value to the consumer. It’s easier for consumers to part with a $20 bill than with a $100 bill, even if they’ll spend the same amount in the end.

But wait! There’s more... University of Florida marketing professors Chris Janiszewski and Dan Uy conducted a study on the difference between $19.95 versus $20. Their study appeared in the February 2008 issue of Psychological Science. They concluded that when something is priced at $20, consumers would value the product in even numbers (“Is it worth $18, $19, $21?”). When a product is priced at $19.95, the consumer is thinking about nickels and pennies, so they would value the product in smaller denominations with a smaller standard deviation (“Is it worth $19.50 or $19.75?”). The product, therefore, holds its value better at $19.95 than at $20.

I still can’t figure out how they come out ahead when they’ll double your order AND toss in a power drill (an $80 value!)...I better hurry and order that one up, they’ve got to be getting close to the first 100 callers by now...

Philip Wocken is an inventive marketing manager specializing in Online Marketing techniques. He can be reached at http://BuzzBrains.Biz and he can be followed on Twitter @BuzzBrains.

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