This week, J.C. Penney showcased its new pricing policy with commercials starring Ellen DeGeneres during the Academy Awards. The discount store -- which only recently sold sweatshirts aimed at young girls bearing the slogan "I'm too pretty to do my homework" -- is revamping its image and cutting down on the kind of everyday sales featured at competitors like Macy's. It's also using simpler pricing: $15 for a sweater rather than $14.99. ("No games, just great prices," the ads proclaim.)
The return of round numbers is surprising, given that psychologists say customers are less likely to question the value of a product if it has an unusual price. People tend to believe that more precise numbers are chosen by retailers after careful calculations based on costs and profit margins and, as such, may be less willing to bargain, says social psychologist Matt Wallaert. "So in theory you could actually price a house lower with a specific price and still end up making more money than you would if you used a higher, rounded price," Wallaert says.
But using round numbers also makes J.C. Penney seem less like a discount/promotional store like Target, which sells sports jackets at $49.99 instead of $50, says Vicki G. Morwitz is the Harvey Golub Professor of Business Leadership and Professor of Marketing at New York University Stern School of Business. "A high-end restaurant will charge $32 for a steak because it makes it seem more luxurious than a steak for $31.99," she says. (J.C. Penney spokeswoman Kate Coultas says the change was to "bring integrity" back to pricing.) There was originally a more practical reason for not rounding out prices, Morwitz says: it started in the 1800s and forced sales assistants to ring up the purchase on a cash register to give change to the customer and reduced the temptation for salespeople to pocket the note.
J.C. Penney may be abandoning the age-old retail tactic, but experts say there are plenty of other ways retailers use price tag gimmicks to get shoppers to buy. Here are four more of the most common:
Fewer calories, same price
People tend not to mind paying the same price for a smaller candy bar if they save on calories, experts say. Cocoa prices rose in recent years along with other commodities, but it's easier for retailers to reduce the sizes of guilty pleasures than increase prices, Morwitz says. "Consumers may notice, but reward themselves by eating less calories," she says. Ghiradelli Chocolate recently reduced the size of its 60% Cacao chocolate chips to 10 ounces from 11.5 ounces. Earlier this month, Mars said it will reduce the calorie content in chocolate products to 250 calories by the end of the year. Snickers bars have 280 calories, Morwitz says, so they will now come in smaller sizes. (A spokeswoman for Mars says the pricing details haven't been finalized; Ghiradelli did not respond to requests for comment.)
The compromise-price effect
This is one of the most common but effective pricing tactics used by retailers who specialize in low prices and electronic stores that want customers to pay extra for a better gadget, says Michelle Barnhart, assistant professor of marketing at Oregon State University College of Business. A camera shop might place a relatively expensive camera next to a camera that would be out of reach of most consumers, to persuade the customer to buy the more inexpensive item. As SmartMoney.com reported, this so-called compromise-price strategy can also encourage customers to spend more and buy a far nicer sofa if it's placed next to an extremely dowdy sofa. The advantage for the store, according to author and retail analyst Johan Stenebo, is customers walk away still believing the store is inexpensive.
Buy more -- but at the same price
Bundling a bunch of fruit and vegetables together has all the hallmarks of a special deal, but it often merely helps to convince the customer to buy more products at the same price, says L.J. Shrum, president of the Society for Consumer Psychology. "Studies show that even though consumers can purchase five lemons for 20 cents each, having the multiple unit pricing increases sales," he says. It's called the "anchoring and adjustment bias," he says. Here's how it works: "5 lemons for $1" signs sound like the customer is getting a bargain and serves as an anchor or focal point for busy shoppers. Even though consumers may have no intention of buying a large number, according to a raft of research on the topic, they often settle on a larger quantity without doing their own simple arithmetic to realize that one lemon is just as cheap as buying five.
Uneven price tags that end in "0"
Some price tags occupy that delicate middle ground between $99.99 and $100, suggesting they are good value, but not too cheap, Barnhart says. Japan's Uniqlo casual-clothing chain, which competes with Gap Inc. and Zara on prices, prices its cotton shirts at $39.90 -- not $39.99, which Barnhart says could make Uniqlo sound like a lower-brow discount store. A spokeswoman for Uniqlo says in Japan it's regarded a polite to give customers 10 yen in change rather than 1 yen and, in the U.S., one dime rather than a cent in change. She also says a lot of thought goes into "eloquent" item descriptions like this plain white cotton shirt: "The work of the perfectionist: The white shirt the symbol of +J. Offering supreme comfort thanks to densely-woven, luxury-quality fabrics and body-fitting, three-dimensional cutting." Confused? Don't be. It's a white shirt, for $29.90.