Archive for October 3rd, 2010

Oct 03 2010

The urge to round up – the tyranny of the nines

My former colleague in marketing and current partner at Inventive Branding, Craig Merrigan, used to bemoan the use of the “ninety-nines” in pricing as an affront to intelligent customers. “If we think ThinkPad users are the most technically sophisticated PC users, then why do we insult their intelligence with RONCO pricing,” was his argument, a compelling one that would probably fail in testing as “just-below” pricing has existed for over a century, allegedly back to the invention of the first cash register. It has to work, right?

It’s kind of weird, from a psychological perspective, to look at the shopping impulse that would lead someone to chose a 99 dollar or 99 cent option over a round $100 or $1. Of course anyone would take the less expensive option when looking at identical items — a penny is a penny, a dollar is a dollar. Who wouldn’t? But what if the two options were dissimilar but close in value? Would a $39,999 Audi A3 be more attractive than a $40,000 BMW 3 series.  The more complex the item, be it a consumer durable like a refrigerator, or a non-durable like a steak, and the customer has to do some research to determine the specs and sorts the apples from the oranges. Is the $50 ribeye grass fed versus the $49.99 corn fed version? I’ll pay the penny and spare myself the cow’s antibiotics.

But standing alone, without an option, let’s say an Apple iPad (there really are no viable tablets yet on the market), is a $499 price point for the 16 GB WiFi model going to unleash my credit card from my wallet versus a $500 price that eeps it locked sanely away for the sake of my bank balance? One would assume Apple, a brand that prides itself on perfection in its details would shy away from just-below-pricing, but no, they too indulge. Could a competitor come out with a marketing campaign that said, “Let’s cut the bullshit. You’re intelligent. The  machine costs $500, screw the dollar”? I suppose so. But I suspect just-below-pricing is reflexive at this point, and coming out with rounded pricing would need to be baked into an overall campaign that presented the brand as one for thinking people not lulled or duped by stupid marketing jedi-mind tricks.

Now if say there was a viable competitor, and that competitor decided to market their device as a head-to-head competitor with identical specifications — let’s say a clone — then the differentiation needs to be part of the selling claim; as in either “Cheaper, ours is $499, you save a buck” or “Ours is better, you get 17 gigabytes for an extra dollar at $500″

Pricing theory is doubtlessly a dreary science that MBAs are tormented with, but what interests me is the human nature to round stuff up.

The New York Times has an interesting story on how some Wharton professors studied the batting averages of major league hitters and saw a remarkable jump in the population of .300 hitters — men who hit the ball successfully at least 30% of the time they came to bat. The study showed statistically that hitters put an extra effort into the waning days of the season to get those crucial hits that make the difference between being a .299 hitter and a .300 hitter. I suppose if I exercised my Society of American Baseball Research membership I could make the obvious point that .300 hitters have better leverage in their future contract negotiations, and with Sabermetrics putting a lot of value on VORP and PECOTA – (Value Over Replacement Player and Player Empirical Comparison and Optimization Test Algorithm) crucial metrics that bench marks the value of a player against the population of other playes and gives owners and management a much better benchmark for assigning value in making salary offers.

The Times article said:

Two economists at the Wharton Schoolof the University of Pennsylvania, while investigating how round numbers influence goals, examined the behavior of major league hitters from 1975 to 2008 who entered what became their final plate appearance of the season with a batting average of .299 or .300 (in at least 200 at-bats).

They found that the 127 hitters at .299 or .300 batted a whopping .463 in that final at-bat, demonstrating a motivation to succeed well beyond normal (and in what was usually an otherwise meaningless game).

Most deliciously, not one of the 61 hitters who entered at .299 drew a walk — which would have fired those ugly 9s into permanence because batting average considers bases on balls neither hit nor at-bat.

Martinez said that “.299 doesn’t look as good as that 3 in front.”

When I am rowing on my ergometer I receive constant numeric feedback about my progress, along with a forecast of my final score for any particular piece of work — if I am rowing a pace of 500 meters ever two minutes, the machine will predict a 30-minute of score of 7500 meters. Obviously the incentive is huge to break certain round number milestones. An 8,000 meter half hour requires an inordinate effort of maintaining a 1:52 split throughout the 30 minutes. The point is that hitting or breaking round number milestones is a big incentive, no one wants to row a 7,499 meter piece over 30 minutes when a little extra effort will break the 7,500 barrier.

So if athletes put in an extra effort to avoid the “ninety-nines” why do marketers flock to it? There is something unfinished, oh-so-close-and-yet-so-far about being less than perfect, from being odd and not even, yet just-below pricing will never go away, even for sophisticated products aimed at sophisticated consumers.

I think it would be interesting for a brand to set itself apart from the herd by eschewing just-below and moving to round-number pricing — as long as it explicitly points out the irrationality of the nines and the insult to the intelligence of its customers.  In technology especially, where consumers have been hit with clock speeds of microprocessors and capacity of harddrives, the insistence on specifications as the primary claim, and not results is astonishing. Does a consumer know what the hell an Intel i7 processor does versus an i5 or an i3? One has to cite that genius of numerology, Nigel Tufnel, and just throw up their hands and say, “Mine goes to Eleven”

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