The Dollar Store and Subway

“In April 2010, Colin Sharp changed the names of his chain of pound shops in Wales from Famous £1 Shop to Famous £1.20 Shop.”  This was in a BBC article titled “Will All Pound Shops Have to Raise Prices?” 

Reading this created an Aha! moment.  Remember the $5 footlongs from Subway?  This was an interesting price because most companies who are advertising a low price end that price in .99.  So why did Subway use $5?  We postulated it was because the round number was more memorable, and since the price was the leading attribute, making it memorable would bring in business.

A storefront titled “Famous £1 Shop” is memorable.  “The Dollar Store” is memorable.  These guys all make the feature of low price memorable.

In the Subway blog we asked what would happen when the recession ended and Subway had to raise their prices.  Boy, that was nothing compared to the question what happens to “The Dollar Store” when inflation hits?

Well, we don’t really care.  But what we do care about is learning from the markets.

So what can you take away?  If you have a sustainable price advantage, you may want to prominently advertise a round price, just to make it memorable.  However, remember most low prices end in 99 or 95, and most businesses wisely aren’t chasing the lowest priced products.  You’d better be sure that you want your customers to remember your very low prices before using this tactic.

 

Mark Stiving, Ph.D. – Pricing expert, speaker, author