$9.99, Are You Outta Your Mind?!

Where is the Value?

The answer to that question depends on what you are buying.  A pair of super trendy shoe clips for your tween-age daughter, probably not; its a good buy.  But a presidential economic reform platform? You might want to think twice.

Quite unexpectedly, Herman Cain, GOP Presidential nominee, and his 999 tax plan, have become the focus of a media frenzy.  Cain, a businessman who revitalized the Godfather pizza chain by closing down under performing stores and demonstrating his masterful marketing skills by dropping the cost of a large pizza by $.01 from $10.00 to $9.99, thereby making customers believe they were getting a real value, seems to be proposing the same tactics to transform the U.S. tax code.  His 999 plan contemplates eventually, and only temporarily, replacing the current tax structure with a  9% income tax, allowing no exemptions or deductions (in lieu of payroll taxes), 9% corporate tax rate with no breaks or deductions and a 9% national sales tax.  Unlike most people out there, we aren’t interested in debating if the 999 plan will generate as much revenue as the current plan. Rather, what strikes our interest is what is up with the magic number 9 that grabs our attention and more importantly, our wallets.

As not to beleaguer the point of how retailers choose to price their goods, we can skim down the process to competitor-based and consumer-based pricing.  Competitor pricing is exactly what it sounds like, selecting a retail price that is based in a comparison to the price of similar products being sold by other companies.  A good example of this type of pricing strategy is Walmart. As the leader of ‘everyday prices’  Walmart looks to offer the lowest prices on goods also available at other retailers such as Kmart, Amazon and Target. The biggest problem with this pricing structure is the constant need to find new customers to stimulate increasing revenue.  Why might Walmart have a problem increasing its customer base if its prices really are that low?  Ego.  Walmart is not exactly the mecca of style and taste. It reeks of cheap.  Michelle Obama may have gotten ‘caught’ shopping for dog food at Target, but she isn’t coming out of a ‘value’ driven store like Walmart.  Target has Missoni, Walmart has Hanes tube socks 5 for $10.00. There is clearly a fashion quotient distinction.

Yet, fashionable or not, value is what consumers most seek out in their purchases these days, independent of the price point.  A luxury handbag costing $5000.00 that last forever given its superior quality has more value than a $29.99 bag from T.J. Maxx that falls apart after two uses.  Customer- based pricing strategy supports this fact.  Simply put, the customer-based, psychological pricing strategy implies there is a mental price barrier that limits what a customer is willing to pay for a certain item.  Research reveals when humans deal with numbers, we place a primary focus on the first number and significantly less on the subsequent digits.  This means that a t-shirt priced at $9.99 is the equivalent to 10% less than a one for $10.00 even if the real difference is only $.01.  The vast retail implementation and success of this pricing strategy is not only limited to Cain and his pizzas.  Sixteen of the top 20 best sellers of Kindle e-books on Amazon are priced with the $.99 strategy.

The underlying principle of psychological pricing is value (the ratio of benefits received from a product or services compared to what it costs to obtain them), and with products that offer awesome, or unique benefits like the iPad, the psychological assignment of value can skyrocket and therefore the price barrier as well.  As important as value is in today’s marketplace, should it be the primary concern when ‘buying’ a candidate to be President of the United States for the next four years?  That really is what we are doing here, buying one persons’ plans, visions and programs that will directly affect our quality of our everyday lives. Perhaps a bit of comparison shopping to see what the other candidates might cost and what their benefits are  before declaring Cain’s 999 plan a magical retail formula.  If you want to learn more about Cain and his programs, tune into Piers Morgan tonight on CNN as he sits down with Herman to discuss Tuesday’s CNN GOP debate held in Las Vegas and his plans to rule the GOP and possible the USA.

On a side note, someone should run now to TJ Maxx and grab that Dolce & Gabbana leopard print dress shown above on super discount. It is soo worth it!


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