Quick Tips 2: Cents

When professor Robert Schindler of the Rutgers Business School studied prices at a women’s clothing store, he found the 1 cent difference between prices ending in .99 and .00 had “a considerable effect on sales”, with prices ending in .99 far outselling those ending in .00.

I’m sure you’ve noticed it — everything from the toothpaste at your local drug store to the cost of a new car seems to end in .99.

Prices ending in 9, 99 or 95 are known as “charm prices” because they cause items to appear cheaper than they really are.

There’s one extremely simple reason that explains this: Consumers read from left to right.

It seems rather simple, but it’s referred to as the “left-digit anchoring effect”, and can have a large impact on your restaurant’s bottom line. A theory published by Manoj Thomas and Vicki Morwitz in 2005 researched how consumers interpret the difference between $1.99 and $3.00. The results showed most people perceive the difference to be $2.01 instead of $1.01, simply because they read from left to right and focus only on the numbers on the far left.

However, it’s important to note that .99 and .95 evoke very different consumer sentiments:

While prices ending in .99 cents create a sense of value, it is also associated with lack of quality.

Prices ending in .95 cents retain the benefits associated with the perception of great value, without the consumer associating the product with lower quality

Takeaway:

In an industry where margins are often slim, changing the price from 11.00 → 11.95 on certain menu items can be an easy, hassle-free way to improve your bottom line.