Psychological Difference in Pricing
The "undercover" economist Tim Harford (he has a book and writes column at the Financial Times by that title) has explained the theories for why prices in our world end in "9." First is something called the left-digit effect, which suggests that consumers just can't be bothered to read to the end of prices. The mind puts the most emphasis on the number on the far-left, so even though $59.99 is closer to $60, it's the "5" that registers. The other theory is that prices ending in ".99" signal a deal to consumers. In short, consumers seem to like prices that end in "9," and experiments say that pricing things this way increases purchases.
Despite the ubiquitous "9" pricing practice, most numbers used in everyday life are whole numbers. It's not common to say, "just give me 5.27 minutes." But why do Le Pain Quotidien's prices still make my mind reel? A new study in the Journal of Consumer Research might have the answer. Researchers found that shoppers deal with pricing information differently when prices feature round numbers ("5"), as opposed to non-round ones ("4.99"). When something costs $100, consumers tend to rely on their feelings, whereas when something has an irregular price—such as $98.67—consumers have to use reason to compute whether it's a good price.
Monica Wadhwa and Kuangjie Zhang, assistant professors of marketing at INSEAD and at Nanyang Business School respectively, conducted five experiments to test this. They found that the prices of different types are evaluated in different ways. For example, products that are recreational or luxurious benefit from rounded prices: Consumers were more inclined to buy a bottle of champagne when it was priced at $40.00 rather than at $39.72 or $40.28. However, for purchases that are utilitarian—a calculator, in this experiment—participants were more likely to buy at the higher non-rounded price. In another experiment, participants were told that a camera was purchased for leisure (a family vacation) or for a class project. They preferred rounded prices when it was for vacation, and non-rounded prices for class projects.
It seems Le Pain Quotidien is currently employing both of these types of pricing—which might be why I get so discombobulated. As lunch is a matter of the stomach, round prices would probably make their menu less of a numerical challenge. And according to other studies, restaurant consumers associate higher quality with whole dollar amounts and disproportionately prefer them. The difference between $12.75 and $13.00 might not mean much to some customers, but to me—and maybe the rest of the huge lunch crowd—round prices might make for a happier, and less stressful, meal.