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Price does make a difference. Should it be 99 or 00?

Although this study focuses on restaurant pricing, they do touch on other products…and honey fits right in their customer’s profiles. How do you price your honey?

This study brought to you by The Ohio State University News and Media Relations.

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Price does make a difference. Should it be 99 or 00?

Consumers instinctively think “value” when they see 99 cent price endings on menus, and they’re more likely to think “quality” when they see a price ending in “00,” according to an Ohio State University study.

Knowing this information could help restaurant owners position themselves more precisely to the customers they hope to attract, said H.G. Parsa, co-author of the study that is scheduled to appear in a forthcoming issue of Cornell Hotel and Restaurant Administration

Quarterly.

“This isn’t a decision-making tool that’s based on economics,” said Parsa, associate professor of hospitality management in the College of Human Ecology. “It’s more psychological. If you are in the high end of the market, you want to maintain the image of quality. If you’re running a fast-food or quick-service restaurant, don’t go after that extra penny — you want to keep that 9-cent ending to project an image of value.”

The findings support results found in studies with other products, Parsa said. For example, a 2000 Rutgers University study found that people reading an advertisement for a dress were more likely to judge it as relatively low-priced — and lower in quality — when advertised at $49.99 rather than for a penny more, $50.00, even when everything else in the ad remained the same.

“You can see this phenomenon with all sorts of products,” Parsa said. “If you’re buying a piece of million-dollar jewelry, you’re looking for quality and not looking for a $999,999 value. But if you’re just spending a few hundred dollars, you’re more likely to think you’re getting a good value if the item is priced at $199 or $399 rather than $200 or $400.”

For the first part of their study, Parsa and graduate student Sandra Naipaul gathered menus from 231 restaurants in the Columbus area. Of the 3,290 menu items from the 62 fine-dining restaurants in the study, they found that the final digit of “9″ was used on 13 percent of the menu items, and a final digit of “0″ was used in 30 percent of the menu items. A final digit of “5″ was used in 56 percent of the cases.

However, when the researchers broke down the category into independently owned restaurants or private clubs and compared their menu prices with those used by national and regional restaurant chains, the difference was striking: The more exclusive restaurants almost always preferred an ending digit of “0″ while the chains most often used the ending digit “9.”

Of the nearly 2,900 menu items from 92 menus from quick-service restaurants, the researchers found about one-third of the menu items ending in “0″ and one-third ending in “9.” Surprised, they again reviewed the menus and realized Chinese and other Asian-themed restaurants skewed the results. After removing those 35 menus from consideration, results changed dramatically: Less than 13 percent of the quick-service menu items ended in “0,” and over 63 percent of menu items ended in “9.”

Many Chinese restaurants avoid the number 9,” Parsa said. “That’s because in Chinese culture, ’9′ traditionally was reserved for the imperial family. ‘Eight’ is often used, because it’s considered the luckiest number. They tend to stay away from the number 4, because it’s considered an unlucky number.”

After reviewing how restaurants already price menu items, the researchers then turned to consumers and studied their responses to menu items’ price endings. For this part of the study, 73 undergraduate students rated one of three versions of a menu of a fine-dining restaurant and one of three versions of a quick-service restaurant menu. The versions were identical in all aspects except for the price endings. The students rated the menus for overall value or overall quality.

Then, the students were given one of two scenarios to read. In the first scenario, the participants were asked to review three menus and decide which of the restaurants they would choose if they were a department store general manager and they had to take their company’s CEO out to dinner. They were directed to choose the restaurant they felt was the highest quality. In the other scenario, they were asked to review three menus and choose among restaurants if they had agreed to buy lunch for a group of classmates working on a group project. In this case, they were asked to choose the restaurant offering the best value. In both cases, the menus had price-endings all ending in “0,” all ending in “9,” or a mix of the two.

When reviewing the responses, the researchers found that participants tended to choose “0″ price endings when choosing for high quality, and tended to avoid “0″ endings when choosing for high value. The research shows a synergy between consumers’ expectations when they see the price of an item, and the image that restaurants hope to project, Parsa said. “By constantly looking at the numbers in prices and making a determination of the quality of those items, we learn what to expect and it becomes a part of our culture,” Parsa said. “It’s a subconscious learning, though — nothing really overt.”

Knowing this, restaurant owners should consider it when setting prices of their menu items, he said. For example, he said, when a quick-service restaurant needs to adjust the price of a 99-cent item, it might as well increase it to $1.09, keeping the image of value, than merely increasing it a penny to $1, which doesn’t reflect the intended image of value. Similarly, upscale restaurants should avoid price ending with “9″ to avoid the image of value, and use the ending digit of “0″ to reflect the image of quality.

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Kim Flottum
Editor, Bee Culture Magazine

http://www.airoot.com/beeculture/index.htm