By TIM ARANGO
In one of the many smoky scenes in “Mad Men,” the critically loved cable show about Madison Avenue in the era of martinis and misogyny, a founder of the celluloid advertising firm Rogers & Sterling describes marketing glory.
“I’ll tell you what brilliance in advertising is,” says the actor John Slattery in the character of Roger Sterling. “99 cents.”
It may be just the insight the nation’s retailers are looking for as they struggle to stimulate consumer spending in this trying time: If you can’t sell something for 99 cents, you should at least tack on .99 to the price.
Steven P. Jobs, the chief executive of Apple Computer, tried the 99-cent approach and arguably saved the music industry from oblivion.
In picking that one standard price for each song for sale on iTunes, Mr. Jobs built a commercially viable digital delivery business for music. Before the start of iTunes in 2003, it was an iffy proposition that people would ever pay for music online when they could steal it from any number of peer-to-peer networks.
Dave Gold also tried it. In the 1960s, he and his wife owned a liquor store in Southern California where they sold wine at various prices: 79 cents, 89 cents, 99 cents and $1.49.
“We always noticed that the 99 cents sold much better,” he recalled in an interview.
They priced all their wine at 99 cents, and overall sales improved.
“The 79 cents sold better at 99, the 89 cents sold better at 99, and of course the $1.49 sold better at 99,” he said.
Mr. Gold’s experience might suggest caution as iTunes prepares to sell songs in April at varying prices — a move that some academics say could complicate matters for consumers and cut into sales.
“It adds a level of complexity to the purchase of music,” said John T. Gourville, a professor at Harvard Business School who has studied what is known as psychological pricing. “Research has shown that when you add complexity to decision making, some people opt not to choose anything,” he said.
Mr. Gold and his wife eventually took the concept to the extreme and in 1982 started a chain of 99 Cents Only stores. They took it public in 1996, and today the company has 282 stores and is worth more than half a billion dollars. In the last quarter, sales were up 8 percent; profits, 31 percent.
Mr. Gold wasn’t the first to strike on 99 cents as a lucrative marketing gimmick, but he may have done the most with it. No one quite knows who came up with the concept.
It could have been Rowland H. Macy, who in this newspaper in 1880 advertised 100 pieces of “reliable black silk” for 99 cents. That’s the first instance of a newspaper advertisement featuring a price of 99 cents — at least the first one that one academic who did some digging on the subject could find.
Then there is this explanation: that the advent of the cash register, invented in 1879 by a Dayton bar owner (according to the Museum of American Heritage), allowed merchants to thwart pilfering clerks by charging a penny less then a full dollar amount, thereby forcing cashiers to open the register to give change to a customer.
Regardless, the marketplace power of .99 seems undeniable. But why?
Academics have offered a variety of psychological explanations. One study, by Robert M. Schindler, a professor of marketing at the Rutgers School of Business, found that consumers “perceive a 9-ending price as a round-number price with a small amount given back.” Researchers have also found that prices ending in .99 communicate “low price” to consumers.
At the University of Chicago, for instance, researchers found that when the price of margarine dropped from 89 cents to 71 cents at a local grocery chain, sales improved 65 percent, but that when the price fell to 69 cents, sales rose 222 percent, according to Kenneth Wisniewski, an author of the study.
And Professor Schindler, in a study at a women’s clothing retailer, found that the one-penny difference between prices ending in .99 and .00 had “a considerable effect on sales,” according to his study, with items whose prices ended at .99 outselling those ending at .00.
All of those findings may help explain why the new prices that iTunes plans to charge all end in nine: 69 cents for less popular songs, and $1.29 for current hits.
So when retailers price their wares with a figure ending in 9, the reason is simple, Professor Schindler said.
“It’s to make the price seem like it’s less.”
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