$10.24 for a burrito? Here’s why some restaurants don’t round up.
Share Now on:
$10.24 for a burrito? Here’s why some restaurants don’t round up.
You’re probably accustomed to paying for items whose prices end in 99 cents or 50 cents. But some restaurants will sell you a burrito for $10.24 or a burger for $17.68.
Restaurants like the New Hampshire chain Tucker’s, Moon Saloon in Arizona and Smokin J’s in California serve food that comes with an oddly specific price tag.
Hale Cole-Tucker, the president and CEO of the Tucker Restaurant Group, said some customers will ask why they don’t use conventional pricing. In Tucker’s case, the charge is as precise as possible to ensure that the cost of the food represents a certain percentage of the price, Cole-Tucker said. That percentage is around 27% to 29%.
Tucker’s prices used to be based on what competitors charged, but margins tightened up, especially when the chain started sourcing more local products around 2016, Cole-Tucker recounted.
“That’s when we started to really do a deep dive on our pricing and make sure we had a price that makes sense for every menu item,” he said.
Many restaurants have to deal with slim margins, an issue that was exacerbated by the COVID-19 pandemic. Thousands of businesses shuttered, while the survivors faced rising costs due to inflation. Using this pricing strategy can help ensure that businesses get the return they want.
At Tucker’s, 55% of goods come from New Hampshire farms and businesses compared to 10% to 15% when the chain launched, Cole-Tucker said.
If an item should be $13.60, the restaurant won’t round down to $13.50 — but it’s not going to round up to $13.99 either. If it did, the price of your meal would begin to pile up once you add in tax and tip.
“We want Tucker’s to always be a place where people feel like they can come multiple times during a week,” Cole-Tucker said.
Some establishments, like the Moon Saloon, have a dual pricing model. They have traditional prices if you’re paying cash ($9, for instance) and more precise prices ($9.34) if you’re paying with a card. That’s because the restaurant charges an extra 3.7% of its cash price to cover credit card processing fees, said Brian Butler, the operating partner.
Smokin J’s BBQ, which has three locations, has breakfast items with specific prices. But the restaurant has actually been moving away from this model, said co-owner Joshua George.
The restaurant introduced this approach to ensure that payments including tax added up to a whole number or ended in 25 cents. That way, the staff could take less time making exact change, George said. One Smokin J’s location handles a lot of takeout orders, so the strategy was supposed to be especially beneficial there and keep the line moving, he added.
But the point-of-sale machines they used didn’t always round the numbers as expected, hence the transition away from this strategy. “There was always some funky math here and there. And it never worked smoothly with all of our items,” George said.
The approach to pricing at these restaurants isn’t extremely rare — Marketplace found that dozens of eateries across the country do it too. But it’s not ubiquitous either.
The precision-pricing model goes against conventional wisdom, said Brian Warrener, an associate professor of food and beverage operations at Johnson & Wales University.
Many businesses will set odd pricing that ends in 95 cents or 97 cents, which “communicates value to the customer,” Warrener said. An item that’s $3.97 seems like a bargain because customers will think they’re spending $3 and change rather than $4.
Other businesses that use round numbers, charging, for example, $40 for a meal, do that to signal quality and luxury, Warrener explained.
“If I go into a very high-end restaurant, I don’t expect to pay $9.99 for something. If I go into a fast-food restaurant, I typically don’t expect to pay $10 for something. I expect there to be 99 or 97 cents on the end,” he said.
Specific pricing, though, could indicate to the customer: “Look, everyone else is nicking you for a few extra cents. We’re not. We’re charging you what it’s costing us,” Warrener added.
Consumers may put more trust in restaurants with very specific prices, said John Dinsmore, a marketing professor at Wright State University.
Walmart, the mass retailer, experiments with using both round prices and “sharp” prices, or prices that come in very specific amounts, said Robert Schindler, a marketing professor at Rutgers University. When it introduced sharp pricing, Walmart believed customers would interpret the numbers as being less profitable and just above the company’s costs.
“The goal was to suggest to the consumer that, unlike most of its competitors, Walmart was meticulous in its pricing processes and was setting its prices as low as possible,” Schindler said.
Research has shown that people do perceive sharp prices as being deliberate. For example, if you put forth a very specific number during a negotiation, people are less likely to make a lower counteroffer, Schindler said. That’s because the sharp sales pitch signals that you’ve done your research and know the value of the item. Or, at least, you’re giving that impression.
In the late 19th and early 20th centuries, prices in the U.S. consisted of even numbers. For example $2, $4 or $10, said H.G. Parsa, a professor of hospitality management at the University of Denver.
People tend to prefer even numbers or 0 and 5 over odd numbers. They generally have difficulty processing odd numbers and it’s easier to add or subtract even numbers, Parsa explained.
While retailers now set prices ending in 95 cents or 99 cents for psychological reasons, they originally switched to odd pricing to help prevent theft. “If you made the price, say $5, the cashier could just pocket the $5 without ringing up the sale. Having prices that weren’t even amounts forced the cashier to make change, which in turn reduced theft,” said Dinsmore at Wright State.
Whether an item costs $10, $10.28 or $10.99, a customer will likely find it acceptable as long as it’s within the price range they would expect to pay. Where pricing can go wrong is if restaurants “violate a sense of price fairness,” Dinsmore said.
“Consumers are very fair-minded. They understand that businesses have to make money,” he added.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
