Oh, what a difference a penny can make in the likelihood that restaurant customers will order a small plate.
A small plate price ending in a nonrounded number - in this case .99 - increases the chances customers will consider that a fair price for a reduced portion and make the purchase, according to a new study.
A rounded price ending with .00 was less likely to result in an intention to order a small plate because the cost was perceived as unfair, results showed.
"Many people think pricing is part of revenue management. So they're coming only from the cost control and bottom-line perspective. But pricing is a marketing and framing strategy," said senior study author Stephanie Liu, associate professor of hospitality management at The Ohio State University.
"We need to understand consumer psychology and consumer behavior so that we can help consumers make better decisions. So what we do is change the price of a small plate from $5.00 to $4.99. It's just one cent difference. But psychologically, consumers feel so much better: 'It's fair. Now I can order the small plate.'"
The paper was published recently in the Journal of Hospitality and Tourism Management.
First author Xi Yu, who completed this work as a PhD student in the Hospitality Management Program at Ohio State, was inspired to examine smaller-portion pricing during the pandemic lockdown, when she was ordering a lot of half-sized sandwiches but didn't pay half the price of the full size.
"I cannot eat the full size, so I always ordered a 6-inch sandwich, but I thought the price was unfair," said Yu, now an associate professor of Faculty of International Tourism and Management at the City University of Macau.
The mixed-methods study consisted of interviews with consumers and an experiment asking participants to rate perceived price fairness and intention to order either regular-sized or smaller meals with varied pricing structures.
The interviews with 36 consumers identified three themes: Restaurant customers often perceived small plates as overpriced compared to portion size; concerns about pricing fairness emerged as a central issue; and nonrounded prices were associated with better value and higher chances for a purchase.
Participants also commented on the things they liked about small plates - they were a healthier dining choice, reduced food waste and broadened a meal's variety.
In the experiment, 244 U.S. adults were asked to imagine ordering a lunch soup-and-sandwich combo at a fictitious restaurant. They were shown an image of either a small- or regular-sized meal priced at either $7.99 or $8.00 for a small serving and $11.99 or $12.00 for the regular serving.
Statistical analysis showed that the nonrounded prices signaled a discount or fair pricing, which increased the intention to order - but only for small plates. Perceived fairness was determined to be the psychological mechanism that drove this effect.
"The rationale is that the nonrounded price will always signal a sense of a discount," Yu said. "For the regular plates, people don't actually care about whether you give them a rounded or nonrounded price."
The findings suggest it makes good business sense to sweeten the deal for small plates not just to increase sales, but to satisfy customers, the researchers said.
"It's a hot topic in the industry, but there hasn't been sufficient attention paid to it. There is literally no guidance on how to price small plates," Liu said. "In our context, we want consumers to order the small plates if they fit their appetite. We don't want them to choose the regular plate just to save money."
Additional co-authors were Jay Kandampully, professor, and Huiling Huang, a PhD graduate, both of Ohio State's Hospital Management Program. Huang is now an assistant professor in integrated resort and tourism management at the University of Macau.
