What now for psychological price points?

News that McDonald’s is increasing the UK price of a cheeseburger from 99p begs the question of whether psychological price points can, temporarily at least, be consigned to the marketing dustbin.

Why it matters 

In a cost-of-living crisis, pricing is a delicate issue and FMCG brands have often chosen to shrink product size in order to maintain a crucial price point. But that option isn’t necessarily open to all brands and, especially in the current environment, there comes a point at which the degree of shrinkage required to maintain a particular price or margin may be too much to persuade consumers that a product is still worth buying. 

More and more brands are increasing prices and blasting through previously accepted wisdom on so-called “charm pricing” – the practice of setting a price just below a round number. So £1.99 for example rather than £2.00: the idea is that people reading right to left see the 1 first and, regardless of what follows, perceive the price to be nearer £1 than £2 and hence good value. 

What it means 

The price of a McDonald’s cheeseburger has gone up 20%, from 99p to £1.19, the first price rise in 14 years! There’s still an element of charm pricing there as the price ends in a 9 and avoids the round number of £1.20, but it potentially sets a whole new benchmark for further price rises (to £1.29, £1.39 etc). 

Sourced from Financial Times