Page last updated at 12:08 GMT, Monday, 20 July 2009 13:08 UK

Rise of the round pound

By Laura Schocker

Over the past year, the four largest UK grocers have been swapping their 99-pence price tags for round-pound sales. In bad economic times, consumers may just be willing to fork out an extra penny at the till. But why?

Pound
This pound is round, but should the price tag be?

Everyone is familiar with the ubiquitous 99-pence price tag. Just last year, a report highlighted the sales tactic as a successful way to draw in customers.

But in the past few months, shoppers may have noticed some rounder prices at the store.

The "big four" of supermarkets, Asda, Tesco, Morrisons and Sainsbury's, have increased the number of £1 promotional price tags 150% over the past year. This compared with a 6% increase in their general promotions, according to a report compiled on behalf of industry magazine the Grocer.

Tesco has designated a "pound shop" area in its stores and Asda features 7,000 £1 lines.

So what's the reasoning behind the shift?

CONVENIENCE

The interest in £1 deals is a simple matter of convenience, says Dr David Lewis, director of research at Mindlab International. While customers may be concerned about pinching pennies, sometimes they're simply not willing to wait for one. "Who wants to collect a pocketful of pennies?" Dr Lewis says. "It's a nuisance."

Supermarket promotion
Once it was a 99p promotion, but times are changing

Waiting for a penny change at the till may even be less cost-effective than simply handing over a pound. "You probably earn more money in the time it takes for your penny to be given to you," Dr Lewis says, calculating that someone would have to make less than £1.20 an hour to make it worth waiting even 30 seconds for a penny.

The nuisance factor extends to the store as well. Opening and reopening the till to hand over a single penny ultimately may end up costing stores more than a pretty penny in wasted time.

"It's just faster to hand over a pound coin without having to wait for someone to hand over a penny," says Dr Lewis, explaining that this would free up sales-people.

MIND TRICKS

Using the 99-pence price tag originally developed as a sales tool to make items appear cheaper, Dr Lewis says. According to this reasoning, consumers will make purchasing decisions based only on the first number of the price. "If you see something which is £3.99," he says, "you look at the first digit and your brain tells you that three is less than four."

But over time, customers have become wary of marketing tricks and sometimes even believe that a round pound price reflects more straightforward business practices - an important perception when competing for spending in recessionary times.

Supermarket chain Iceland's founder, Malcolm Walker, told the Grocer that the chain has found success with its fixed prices. "We decided the pound was honest and more simple," he said.

While 99 pence may technically be a bit less money than a single pound, consumers don't necessarily think that way, Dr Lewis says. Whether or not it's a fair comparison, consumers see that 99 is a bigger number than a round one. "We never talk about 100 pence, we say it costs a pound," he says. "It may just look slightly cheaper to spend one unit compared to 99 units."

VALUE

It seems the round pound has turned into another price-war weapon for stores weathering the recession.

The appeal of these prices may come from customers perceiving that they have been rounded down from a larger, fractional cost. And, according to Dr Lewis, many consumers don't think too much about handing over that single coin in the store. "People don't really think a pound is worth anything at all," he says.



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