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$5 is a magic price

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McDonald’s is bringing back its wildly Popular Dollar Menu
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When Kenny Jones is hungry, he knows exactly what he wants.

“Super cheap and efficient,” says the 24-year-old college student from Lawrenceville, Georgia.

So he heads to Taco Bell where, for a mere $5, he can load up on one of the chain’s meal deals. On a budget, his $5 haul usually serves as dinner, but occasionally, he’ll save some of the food for the following day.

“Value is important; it keeps me coming back,” Jones said. 

In the fast-food world, five – as in $5 – is the magic number. It has become the de facto sweet spot for trying to lure in customers based on meal price.

Chicken chain KFC has its $5 Fill Ups. Subway brought back its famous $5 Footlong sandwiches this winter. Little Caesars boasts a $5 Lunch Combo and Taco Bell has its $5 Buck Boxes. Plus, there are Dairy Queen’s $5 Buck Lunch and Carl’s Jr./Hardee’s $5 All Star Meals that debuted in September.

The American fast-food devotee is conditioned to expect a good deal, and that means food offers for a crisp $5 bill are likely to be unaffected by general inflationary pressures, commodity price swings and tariffs.

“A lot of us are finding $5 is really a good value and building offers that consumers respond to,” said Tony Weisman, chief marketing officer at Dunkin’ Donuts. “We have so many formidable competitors that a value situation is to be expected as everyone is trying to attract traffic.”

With all those $5 deals out there, “regular (fast-food diners) have come to expect it.”

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While many national chains have even less expensive options – such as McDonald’s $1-$2-$3 Dollar Menu, introduced in December;  Burger King’s Value Menu; the almost-there Wendy’s 4 for $4 Meals; and Dunkin’ Donuts tiered Go2s of double drinks or double sandwiches for $2, $3 and $5 – the real fulcrum to get money out of wallets and into cash registers is $5.

Of course, the goal of every chain is to entice customers to spend more. By not including a drink or enticing customers into adding a dessert or salad, they can hope to raise the check price to $7 or $8.

Getting a full meal for a low price is an inherent part of the fast-food model. Many of the older chains were launched decades ago on the promise of a 10-cent hamburger.

Little Caesars carved out its $5 niche years ago and still stands by the $5 Hot-N-Ready pizza. It’s the company’s best-selling item, according to CEO Dave Scrivano.

“It’s easy. It’s affordable across America,” he said. “The economy has gone up and down. It will continue long into the future” even as the pizza chain’s costs continue to rise.

Taco Bell officials say, too, that ingredient prices so far have no impact on its $5 pricing. The chain’s $5 boxes are a major sales driver, generating $1 billion in 2017.

“It’s part of our continued commitment to deliver unsurpassed craveability with unsurpassed affordability,” the company said in a statement. “Five dollars seems to be a popular price point, because it is a reasonable amount to pay for a meal, compared to $10 which starts to feel pricier for a quick-service restaurant.”

The $5 price point seems to works as breakfast, lunch or dinner.

“Psychologically, $5 still seems like not lot of money. It’s just a denomination of a bill,” said Ravi Dhar, director of the Center for Customer Insights at the Yale School of Management. “It can make it easier than if you’re spending $5.50 and you have to break a $10. You’re spending 50 cents more, but it feels like more.”

That sense of getting a bargain is significant, especially among millennials.

“The whole idea of a whole meal is a signal or a cue that you’re getting a lot,” he added. “It reinforces the idea that they’re smart shoppers.”

That’s why Jones keeps coming back to Taco Bell a couple times a month.

“Everybody’s got at least $10 in their purse or wallet,” the Georgia student said. “It’s easy to get something quick. You can also stretch it.”

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