Most pricing research to date in the hospitality industry has been about typography, menu layout, use of images & wording and how that influences consumer perceptions. What has been lacking in research is some solid information on how the way in which prices are presented impacts on actual purchase behaviour.
Cornell University’s Center for Hospitality Research has recently released a study looking at just this issue and its surprised some. They tested three variations on menu pricing: using a currency signifier (eg $10) using no currency signifier (eg 10) and spelling the price out (eg ten dollars).
Popular psychological theory (and the researchers’ hypothesis) would have suggested that using ten dollars should have performed well but they didn’t find this. Rather they found that people purchased more when any reference to money was omitted (ie not using either $ or dollar but rather just using the number say 10) and people were not reminded this is actually money they’re spending.
The reasons for this could be multiple and the researchers themselves point out that really this study just points to the need for more research. However the most likely hypothesis is that just as is found with the use of the $, the repetition of the word “dollar” reminded people it was money and inadvertently primed and activated concepts of cost or price, initiated a pain of paying, and subsequently caused guests to spend less. This all relates to what psychologists call semantic salience which basically means that whilst people do know that $20, 20 and twenty dollars mean the same thing, they generate different levels of attention, awareness and attitude in some consumers. When people are reminded this is real money basically they will notice, remember and dwell on prices more.
So what difference did this all make to spend rates? Well, whilst quantifying the increase in spend wasn’t an objective of the study and certainly more robust work needs to be done to fine-tune cross-impacts of other issues, the study did find that using a numeral without a reminder it was money (ie no $ or dollar) resulted in an 8.15% increase in per head spend.
In other research looking at food pricing, there are even more hints on how to promote price.
A study done by Wansink in the university cafeteria showed that descriptives on items influence that items purchase frequency and also customer satisfaction but research suggested that it did not influence how much people were willing to pay. For example “Grandma’s Zucchini Cookies” vs “Zucchini Cookies” – people preferred adding the grandma descriptor, they felt happier about buying it and chose that item more often BUT would not pay more if it was called “Grandma’s Zucchini Cookies” than if it was called “Zucchini Cookies”.
Other research, including studies by Naipaul & Parsa found that value-oriented customers are influenced by odd-numbered or “value” price presentations – for instance prices ending in 9 as opposed to those ending in 0. That study also showed with restaurants, customers assumed the restaurant was higher quality if prices ended in a 0 rather than a 9.
Most food purchase behaviour research has been done in supermarkets, such as the Miyazaki et al study which examined whether the way unit price labels were presented would change purchase behaviour. That study showed that the more prominent unit price information is presented, the more aware consumers were of the price and the more likely they were to use price in their purchase decisions. Interestingly enough in the same study they found that tricks in pricing presentation was significantly less effective the more customers were already aware of prices.
So what does that mean for pricing food?
- Choose the products you attach descriptors to because preference may skew in that direction and if they’re higher margin items it can increase profitability
- Think carefully whether you want to portray a value or quality message before deciding your price points because odd number pricing can create a value perception and using whole numbers can create the perception of quality but you can’t really mix & match because the flow-on effect is more to the establishment than the product.
- If you’re choosing a value proposition in your pricing then emphasise prices and make them prominent but remember this will only work on the casual or less price sensitive customer – those who know the prices beforehand won’t be tricked
- Be aware of the priming effect of reminding people this is real money they’re spending. If you are trying to emphasise price then by all means use $ but if you’re trying to run on a quality proposition and get people to spend more then consider totally de-emphasising any reminder that the $20 they are spending on a bowl of soup is real folding money. 20 or twenty sounds a lot less painful that $20.
For a copy of the Cornell University Study go here
