Pennies

Here’s an interesting sales strategy – raise your prices by a penny, and advertise it as being a good thing. That’s what a French grocery chain is trying. Would it fly here in the U.S.?

Carrefour Markets has launched a new campaign called “Les Prix Ronds” (“Round Prices”). 500 grocery products will have permanently rounded-off prices. For example, the store’s announcement says, one hamburger costs one Euro. Two packages of chicken burgers can be yours, for four Euros flat. Carrefour is promoting the move as a way to “help its customers by offering round prices throughout the year.”

It would certainly make keeping a running tally of your grocery bill easier. But what are the chances that others, particularly American stores, would follow suit? Or that we the consumers would think it was a pricing strategy worth bragging about? Truth is, we may think we know better than to fall for the “99-cent” trick – everyone knows that a $1.99 item is really basically two bucks – but we apparently like our prices just the way they are.

The phenomenon of the “99” ending has been well-studied, but there’s little consensus about how it started, or how it works. Some claim it has to do with the invention of the cash register in 1879. Forcing clerks to give a penny in change would require that they open the register, and record the sale, thereby preventing them from pocketing the cash.

A simpler explanation is that 99 cents just seems a whole lot cheaper than a full dollar. A number of studies have noted how, since we read left-to-right, we tend to process the leftmost digits in a price and leave out the rest. So we may “know” that $1.99 is just a penny away from two dollars, but subconsciously we still process it as $1-and-change. Getting even further into the psychology of it, a rounded-off price can appear to be rounded up. A $2 item may not seem like a bargain, but the precision of a $1.99 price tag can make it appear that the item is being offered at the lowest possible price.

Retailers have us so well-trained, that they can trick us into believing that prices ending with 99-cents are a bargain, when often they’re not. In his study “The 99 price ending as a signal of a low-price appeal”, Rutgers University professor Robert Schindler found that consumers presented with a 99-ending price “were more likely to judge the item to be ‘on sale’ and were more likely to believe that they would be unable to find the advertised item at a (lower) price.” But an actual price comparison showed that “a 9-ending price was not only unlikely to be the lowest price around for that specific item, but actually was more likely to be among the higher prices for the item.”

Walmart has even taken the practice a step further – its prices that end in 95-cents or 88-cents, for example, suggest that Walmart is just that much cheaper than those whose prices end in 99-cents.

Since the 99-endings appeal to bargain hunters, higher-end stores are more likely to forego the practice and charge round prices in dollars-and-no-cents. A price ending in zero can suggest that the item offered is of high quality, and not slashed to sell. So while rounded prices are not an unusual pricing structure for a department store, for example, it’s very unusual for a grocery store. And it’s uncertain how grocery shoppers will respond – an item that seemed like a bargain at $1.99 could somehow come across as a high-priced premium item if it costs $2.

The exception seems to be dollar stores, where rounded-off prices have long been part of an honesty-in-pricing, low-price appeal. But then one dollar store chain has tried to do them all one better. California-based “99 Cents Only Stores” manages to portray itself as a discount dollar store that beats everyone on price – even if only by a penny. Or, these days, by one-hundredth of a penny. In 2008, the chain revised its pricing policy, so 99-cent items would actually cost 99.99 cents, or put another way, 99 and 99/100th of a cent – like gas station prices on steroids. Some disgruntled customers sued, saying everything is essentially a dollar now and not “99 Cents Only” at all, but the pricing policy remains. Though the new prices could arguably work against the store’s low-price image – at first glance, bell peppers marked as “just 49.99 cents each!” seems an insane price, until your brain processes the “cents” on the sign and realizes the store isn’t charging nearly 50 bucks for a pepper.

So if tweaks to the 99-ending price structure can bring about confusion and even lawsuits, perhaps Carrefour’s round-price experiment will never make it to these shores. Especially after the owners of the 99 Cents Only Stores, who tried so hard to stick to 99-cent prices, found that years of one-penny (or fractional penny) discounts can really add up. In 2011, they cashed out and agreed to sell their company for $1.6 billion.

A nice round number – it just sounded so much better than $1,599,999,999.99.

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