What is a Price Point? (with photos)

The price range is the retail price of an item.

The term “price range” is used in a number of related ways in the world of economics. All uses revolve around the retail price charged for an item and the way consumers interact with that price. Some people specifically refer to retail price as “price range”, which is an example of common usage of this word. Understanding how price points work is critical for companies that manufacture goods for retail sale and for retailers who handle these products.

Many retailers seek a price that will please consumers, adding or subtracting slightly from the profit margin to get there.

Ideally, a retailer wants to hit the perfect balance point, where consumers see a price as fair and expected, and demand for a product continues to remain consistent. If a price point is too high, demand can decrease, leading to fewer units sold and eventually pushing the margin far enough for the company to make more money at the lower price. Low prices can increase demand, generating profits on volume rather than individual items, a tactic used by bulk and discount retailers.

Consumers tend to be more attracted to prices that end in odd numbers.

There are several things about price levels that are interesting from a psychological perspective. Consumers seem to be more attracted to prices ending in odd numbers, and as many people know, prices ending in 0.95 or 0.99 tend to be seen as more attractive. A savvy business or retailer will set a price that ends in one of these numbers rather than opting for a simple whole number because people see greater savings at these prices even if that’s not actually the case.

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Standardized price points are also used to avoid distracting consumers. Instead of marking things strictly by percentage, for example, many retailers aim for a price that consumers like, adding or subtracting slightly from the markup to get there. 12.99, for example, is a more attractive number than 12.37 or 13.02, just as 14.99 is perceived as more attractive than 15.00.

The researchers also learned that changes in a price point can change the way consumers view a product. If consumers are used to paying a certain amount, they will see that amount as the fair price. When the cost increases, consumers feel they are being taken advantage of and express dissatisfaction, even if the increase is perfectly within the bounds of inflation and rising material costs. If prices are lowered, the company will have trouble raising them back to the previous level, because consumers associate the new price range with the best and fairest value.

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