Episode 69: Twenty Bucks, Period.

You may recall a recent message from yours truly, flogging a book collection of the “best of” my silly cat columns. (If you haven’t bought yours yet, go to: http://www.lulu.com/content/690688 right this minute. We’ll wait until you finish ordering your copies.)

All done? Great! Now then, you might be asking yourself, why is that stupid book priced at $20?

I could spend some time explaining the economics of publishing as well as my own greed, but that wouldn’t be much fun for either of us. What is more interesting, at least to me, is the difference between a price of $20 versus $19.95, $19.99, etc.

While I was navigating lulu.com’s publishing process, I was advised to change the price to $19.95. I ignored this advice because I had made myself a promise that if I ever had something to sell, I would round up the price to an even number. I’ve always felt that this $19.95 business is silly, at best, and pretty insulting to the intelligence of the buyer.

Do they really think anyone will be fooled into thinking that there’s an important difference in price at work here? And where did that whole notion come from in the first place? After minutes of research on the Internet, including that infallible resource known as Wikipedia, I’ve developed some definitive answers.

Once upon a time, my dear kitties, you went to a store, selected a purchase, and handed over cash to the clerk. If you did not have exact change, the clerk would make change for you from the cash drawer, or till.

And that’s where the problem came in. Some clerks would pocket your money to, shall we say, supplement their income. Suspicious retailers responded to this practice by requiring that all transactions be handled by a cashier, even going so far as to ensure that all prices were uneven ($19.99, etc.), so that the clerk would, at least in theory, have to see cashier to make change.

This idea wasn’t much of an improvement. Dishonest clerks easily found ways around the old cashier trick. As did dishonest cashiers.

The invention of the cash register was revolutionary, at least from a retailing perspective. (Retailers of the world, unite! You have nothing to lose but your, um, losses.) Not only did the machine “register” each purchase by creating a record, a bell would ring (cha-ching!) each time the cash drawer was opened, alerting the manager or owner, that someone was opening the till.

Clerks were offended by the cash register, calling it a “thief catcher,” which it was. Nevertheless, profits increased, record-keeping was finally possible, and there was rejoicing throughout corporate America.

So, one theory says that there was a practical reason for all this $19.95 business, before the invention of the cash register.

The other theory is that this goofy pricing was invented much later, perhaps in the 1930s. Retailers realized that people actually do think they’re getting a good deal when they pay $19.99 instead of $20. No less of a source than the Pittsburgh Post-Gazette, explains the psychology this way:

“Not only do people make all kinds of purchasing decisions that aren't rational, they (experts) say, but they're particularly susceptible to the kind of offers cited above, which are known in the trade as ‘9-ending’ or ‘just below’ prices.

“Studies show the technique not only influences people's perceptions of prices, but boosts their buying.”

The PP-G cited one study in which 30,000 catalogs with prices ending in .99 were mailed to one group, while another 30,000 with prices ending in .00 were mailed to a second group.

“The 99-cent catalog significantly outperformed the .00 one, Dr. Schindler said, recording 8 percent higher sales even though the average price decrease was only three-hundredths of a percent.

“Standard pricing formulas say that retailers will get a 20-percent increase in sales for a 10-percent drop in prices, yet the 99-cent approach generated almost half as large an increase in sales for a price cut that was minuscule.”

You may well ask, my fine furry friends, why is this the case? It’s the old right digits and left digits effect, of course. The right digits signal that it’s a bargain.

Oddly enough, however, studies have also shown that the left digits also have a lot of power. Consider the difference between $49 and $49.99. Three out of four people see no difference in these two prices. (You and I, of course, are in that smarter, more discerning 25%, aren’t we?)

Research conducted by The Ohio State University and others indicate that even number pricing connotes higher value. College students were asked to choose a restaurant for different purposes: 1.) Places selected to impress a client using an expense account, versus 2.) Eateries where they would have to pick up the tab themselves.

The study showed that “Participants tended to choose "0" price endings when choosing for high quality, and tended to avoid "0" endings when choosing for high value.”

That’s why you will see even number pricing in your tonier restaurants, and high end luxury products offered by stores such as Neiman Marcus. And books by Bruce Pilgrim.