Famous Last Words: Pricing Questions
An e-mail from reader Nathaniel Rink a while back asked two questions about how to set prices and describe them. Here are my thoughts.
Question #1: Is $19.95 really better or worse in a direct marketing offer than $20? The common notion around here is that the extra nickel off has a big impact on uptake rate, but I've never heard any experts testify to this. In fact, I could see the counter argument that for online marketing, the simpler, smaller, cleaner $20 might take less thought to process and result in better success.
With the dot-com boom, all the tech-obsessed 20-somethings who set the protocols said "this was a new medium and new rules apply, and by the way, you old-timers are vestigial and no longer needed. We make the rules now." The result: the dot-com bust. That's because all marketing is to people. The same emotional appeals—fear, greed, guilt, anger, exclusivity, salvation and flattery—work in any venue, whether it be print, electronic or digital/film.
The origin of pricing goods at $19.95—as opposed to $20—started out as a theft-protection device in the days before cash registers. Say a shirt was priced at $2. A customer could give the sales clerk a $2 bill and take the shirt, whereupon the clerk could pocket the $2 and the store owner would be none the wiser. With the shirt priced at $1.95, the clerk was forced take the $2 bill to the cashier, who would write up the order and hand the clerk a receipt and a nickel change to give the customer.
That pricing scheme turned out to be a brilliant marketing technique, since $19.95 seems and feels like a lot less than $20. Generally, $19.95 will work better than $20. If in doubt, test.
That said, remember direct marketing legend Ed Mayer's dictum, "Don't test whispers." In other words, don't test $19.95 vs. $19.99 or blue paper vs. pink paper. Tests are expensive. When you are spending time, effort and money on tests, go for breakthroughs.