Is the Round Pound the New 99p?

It has long been used as a tactic by retailers who are keenly aware that consumers tend to place prices in categories such as “under £2” or “under £3,” with the first few denominations having a disproportionate impact on how they value a product.

The past six months have seen an increasing emphasis by mainstream grocers on multiples of the pound price point – typically £1, £2, £4 or £5. Tesco, the U.K.’s largest retailer, has been experimenting with price-point “shop-in-shops” for a number of months, and is introducing larger, “£ shop” branded sections in with a range of non-food and food (e.g. confectionery) items split by price point — £1, £2 or £3.

Tesco is not alone. In January, Wal-Mart’s Asda launched a range of staple groceries at the £1 price point. The retailer now offers some 7,000 products at £1, claiming that “it makes shopping on a budget easier for customers.”

Weighing the benefits
Industry executives and analysts — including Poundland CEO Jim McCarthy — have described the pound price point as being “honest” in that it removes any notion or perception that consumers have been tricked by the retailer.

It’s also clear that simple pricing is attractive to those consumers shopping on a budget: it is much easier to keep track of eight items at £1 each than eight items at a range of different price points. Finally, the growth of fixed-price retailers like Poundland and Poundworld has enhanced the value credentials of the pound price point in the eyes of consumers.

Although the pound price point has undoubtedly grown in significance in recent months, the 99p proposition is far from dead. Indeed, as mainstream grocers have jumped to adopt the pound price point, a number of hard discounters have been forced to re-emphasize 99p to retain their competitive edge.

Both in-store and in its advertising, Aldi is aggressively promoting the fact that half of its products now sell for 99p or less. Meanwhile, even the pound stores are reportedly facing competition from penny-pinching shoppers switching allegiances to rival 99p Stores. Earlier this year, the U.K. press reported on a Poundworld store in southern England being forced to close by the opening of a 99p Store across the street.

Pound force
With few concrete indications that consumer confidence is recovering, it seems likely that the pound price point will become even more important in the coming months. Indeed, the trend could accelerate as retailers ask brands to fund cuts to allow products to be priced at £1 (approximately $1.40).

With such a scenario in mind, brands could begin to consider adapting pack sizes (or grouping items together in multi-packs) to fit into the new pricing structure. Whitworth, for example, created a 1.5kg bag of Whitworth’s sugar — some 50 percent larger than a typical pack found in supermarkets — to be exclusively sold in Poundland.

In addition, brands could pre-print “£1” onto their product or shelf-ready packaging, thus clearly communicating the price point to consumers with little assistance from the retailer. Such a strategy also finds favor with some retailers, as it makes replenishment more efficient.

And, if competition intensifies even further, the adoption of the pound price point provides the option of dropping prices down by a penny to 99p.