How to increase your profit through price rounding
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May 25th, 2006
With the 5c piece to be phased out in July this year, your next
menu change may need some thought regarding price rounding.
It is interesting to note the impact price rounding has on price
perceptions. Price competitive retailers like Pak N Save commonly
use this practice as they compete based on price. You would
note that Pak N Save prices would currently end in a 5, e.g
1.95. A more upmarket restaurant would therefore list their
pricing with a round number.
As a general rule, Round up items to the nearest 20 cents. Using
other numbers looks bogus and doesn’t have an impact. If it’s
3.40, that’s no different to the customer than 3.50. As an exception,
use numbers that end in 95 cents, rather than rounding up to
the next dollar – a point at which customers tend to perceive
an item as more expensive. Of course, none of these rules are
set in stone. So as you work through the testing process, keep
the following natural human preferences in mind:
Under $1 – Endings in 5 or 9. Avoid 1, 2 or 4
$1 – $10 – Endings in 5 or 9. Avoid prices like $1.01 or $1.08
etc.
$10 – $25 – Endings in .95
$25 – $50 – Whole dollars ending in 9, but .50, .75 and .95
are okay
$50 – $100 – Whole dollars ending in 7 or 9