FREAK Shots: What Does 75 Cents Do?

Blog reader Justin Smith sent this photo of a dry-cleaning shop in his Greensboro, N.C., neighborhood which apparently didn’t account for inflation with its original name. (You can still see “$1 Cleaners” in the window.)

On his blog, Smith suggests that they should have considered a different economic equation before deciding to raise prices: marginal return = marginal cost + new signage.

INSERT DESCRIPTIONPhoto: Justin Smith

But if Dan Ariely‘s pricing study applies to dry-cleaning businesses, might this establishment be drawing more customers — and thus making much more — than in its $1 days?


Abhay

In the Chciago area, we have a similar discount cleaners (CD One Price Cleaners). When they opened up, it was 99 cents a shirt and $1.50 for everything else. I was pretty convinced that if a business was spending money on a neon sign, they were pretty committed to that price for a while (it's not like it was a paper sign that was cheap to replace). That price stuck around for a good 2 years, until they raised their price to $1.09. Again, I thought they were committed to their price, but another 6-9 months later they raised their price again to $1.19 and today it's $1.29.

So much for that theory.

angie

As an owner of a dry-cleaning business (however, not a discount one such as this) - $1.75 for a shirt would be barely making a minimal profit.

10 years ago, when propane prices were around $0.80/gallon - we added all of the costs associated with cleaning and pressing a shirt - it totaled about $0.82 each. At that time we were charging around $1.25 per shirt.

Since then, propane costs have nearly tripled - and propane is used for everything from heating the water to heating the dryers and of course, cleaning the clothes... and there has NO CHANCE of being able to triple our prices in that same time. We have been struggling over the past few years just trying to keep our heads above water.

And, costs of propane have not been falling like they do at the pump - many businesses are forced to purchase their propane in large bulk lots to keep prices even. We are still paying $2.50 per gallon. And will be until at least next year, not matter how low prices at the pump for gasoline fall.

We strive to offer the best quality and service - and the best guarantee. (Which discount dry-cleaners don't offer, by the way) And hope that after 60 years in business, we'll pull through the bad times.

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Dana

I agree with Dan - recently I started using a "1.75" cleaner in my area, and I'm driving further to get to it. Dry cleaning has become so expensive, and in this economy its hard to afford $6.00 for a clean pair of pants. They got my business because of their consistent and low price. So far, the quality is just as good as my old cleaner.

I suppose in the "unattainable triad", I've sacrificed conveninece (promixity to home) for price -- while quality stayed consistent.

Ellene Cain

I like the phrase The Five and Dime Store.

DaveyNC

Hey, I've used these cleaners! They're near High Point, NC, actually. They do a great job. There's a concept: charge a reasonable price and deliver great work. Business follows. Only reason I don't use them any longer is that I'm not in Greensboro so much any more.

Helen

If anything, this just points up the utility of those programmable LED signs.

Robin

I suspect #1 is right. You can see the 7 is a bit thicker and perhaps slightly more white than the 1 or 5.

frankenduf

this is like the 'dollar' stores in philly- legal rejoinder: you can pay for anything in the store with dollars

John Jay

Also time inflation

Sergio Mendes and Brasil 66 became and Brasil 77 followed by and Brasil 88. He apparently stopped before hitting 99, knowing that 00 (his next tick of the time-o-meter) would be too soon.

A similar problem with failure to anticipate aging happened with "The Young Rascals" and "Sonic Youth". And, I might argue, any of the northeastern states such as New Jersey, New York, etc. that will carry their name "New" for centuries or perhaps millenia forward.

harry nc

What does $.06 do? Back in the late '60's, Motel 6 started at $6 a night - plus all the quarters you would feed into the metered black and white TV. They soon went to $6.60 - then $6.66! Could that 6c really have made a difference? Did they know the theological implications of 666?

KingofSC

Usually when the US enters a recession you see prices for consumer goods go down. Manufacturers don't want to idle plants so they can at least partially cover overhead and hold on to valuable workers. Normally they will make special deals with retailers at reduced profit margins(or even a loss) so they can lower inventories and keep their plants running. Detroit has been unloading V8 SUVs. Gas prices are going down. Electronics prices are following their normal downward pattern. Other than those products, nothing is going down despite a sharp decrease in basic materials/commodity prices that began a few months ago. The bread I buy is still $3. The price on a cast iron pot I want has actually gone up. Wal*Mart has increased the price of their store brand lemon juice in the last two years from $1.27 to $1.87. Copy paper costs the same even though wood pulp has fallen. Why hasn't that $1.75 dry cleaning price gone down when the cost of petroleum based cleaning chemicals has declined?

The US will never get out of this recession unless we see a sharp decline in consumer prices. Lower housing prices only help first time buyers.

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Jeffrey

I wonder to what extent there is a placebo effect or marketing effect for advertising pricing. For example, if told a pill costs $2 and not 10 cents, I might not only think it's better, but might rationalize the $2 as a deal. Likewise, I personally do not have many shirts cleaned professionally, so $1.75 (or even $2) might seem like a bargain if advertised such as it is at this store. I see the sign, I think "Hey, $2 ain't bad," compared to when I enter a store, see a $1.75 price, and think "Huh. $1.75 just to clean a shirt."

I bet there's a reverse effect, though, for say a car: "THE AMAZING $6K CAR!" probably doesn't entice.

lewinski

Based on the missing digit in the window, I would not be surprised if it used to be $1.50 cleaners; they may have just moved the five over a slot in the sign.

Tribrix

Reminds me of Three Dollar Records in Richmond VA, who not only outlasted the price in its name, but the record itself.

Martin Albrecht

Hello Tribrix - there is still a "Three-Dollar-Record" Store? Amazing! I couldn't find the store anywhere, do you have a contact? Thanks! Martin

albrecht@crossmedia.de

Loggy Pock

I will give it a shot and try to answer Smith's question.

I don't think that because of the higher prices the people will be more drawn to that store, maybe they will at first, but it won't last, since their expectations attatched to the service, in contrast to Dan Ariely's experimental subjects, have no influence on the result (clean pants).

They can see afterwards how clean their shirts are and how well they smell, and if they feel it's not worth the money, they wont come back. Maybe they'll think it's cleaner cause they think it must be cleaner for that price, but I think that this effect will only have a marginal impact on their measurement of the service.

So Dan Ariely's theory can be better adepted to businesses who sell products or services which value is more left to subject interpretation such as "flavor-based-business" like fashion. Still, good question!

Victor de Levy

I think the cool thing about all this is that maybe this is a promotional price to bring in shirts-wanna-wash and convince them to bring the rest of their clothes since (maybe) washing shirts isn`t a "A"service and isn`t (probably) responsible for more or less 70% of it`s billings. (All that if it is 1,75 only for shirts)

I would like to know if there could be any kind of association ( those of quantitative methods) between price of shirt-washing and the willing of the customer to bring the rest of his clothes due to the promotional price (Even if it is just for the shirs).

Sorry for the terrible English

Brazil, Brasília.

LT

Hey, $1.75 is cheap!!! I have to get my stuff dry cleaned daily I wish it were only $1.75!

LG

@ Angie: I own a one price cleaners and all work is guaranteed, we stand behind our product 100%, more than a regular price cleaners ever would.

@kingofsc: I don't know where you are getting your info but an FYI, the cost of our chemicals and supplies has not gone down at all, it has nearly tripled in the past 10 yrs. We still do all we can to keep our prices as low as possible to serve our community and still put food on the table for our families during these terrible economic times.

@Abhay: read my comment above, businesses must comp for the skyrocket prices of supplies and profuction. I am dear friends with the owner of CD and they are still lowest price and absolute BEST customer service and quality in the business at that price. You cannot beat them in the Chicago area.