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What is a Price Point?

Mary McMahon
By
Updated May 16, 2024
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The term “price point” is used in several related ways in the world of economics. All of the uses revolve around the retail price which is charged for an item, and the way in which consumers interact with this price. Some people refer specifically to the retail price as the “price point,” which is an example of a common usage of this word. Understanding how price points work is critical for companies which manufacture goods for retail sale, and for retailers who handle such products.

Ideally, a retailer wants to hit the point of perfect balance, where consumers view a price as fair and expected, and demand for a product continues to remain consistent. If a price point is too high, demand can slacken, leading to fewer units sold, and eventually pushing the margin enough that the company would have made more money at the lower price. Low prices can drive demand higher, creating profits on volume, rather than on individual items, a tactic used by bulk and discount retailers.

There are a number of things about price points which are interesting from a psychological perspective. Consumers appear to be more drawn to prices which end in odd numbers, and as many people know, prices which end in .95 or .99 tend to be viewed as more appealing. A savvy company or retailer will set a price which ends in one of these numbers rather than going for a neat, whole number, because people perceive greater savings with these prices, even if that isn't really the case.

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

Researchers have also learned that changes in a price point can change the way that consumers view a product. If consumers are accustomed to paying a set amount, they will view that amount as the fair price. When the cost rises, consumers will feel like they are being taken advantage of, and they will express dissatisfaction, even if the rise is perfectly within the bounds of inflation and rising materials costs. If prices are lowered, a company will have trouble raising them back to the prior level, because consumers associate the new price point with the best and fairest value.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

By anon337245 — On Jun 04, 2013

How should a health sector enterprise do price point research?

To be specific, I want to decide the price point for a diagnostic test.

By anon336670 — On May 30, 2013

What is your opinion of the different price points, i.e. $69 vs. $79 or $89? Are there some numbers that are better selling prices than others?

By anon289048 — On Sep 02, 2012

I believe we look at the round number (e.g. 30.00) as easy, unimaginative, without much consideration or effort to help, whereas a consumer sees the uneven number (e.g. 29.99) as creative and as making an effort.

The creativity versus the boilerplate is more attractive to the consumers' mind's eye.

We usually like balance. But for the consumer, this out of balance image offers the possibility that the weight has been shifted in favor of the consumer. My opinion. --Wally in Alaska

By anon218568 — On Sep 29, 2011

I think this is a mediocre explanation that doesn't properly differentiate between the terms "price"/"retail price" and "price point."

By anon145055 — On Jan 21, 2011

@SauteePan: It's funny that we assume prices are set at .99 amounts because of consumer psychology. The original reason for setting such prices was that it would ensure the cash drawer in a store would automatically open, in case the cashier needed to make change for a customer.

By surfNturf — On Aug 05, 2010

SauteePan- I think that is weird too. I know that many times price point coupons are featured in various department store sales.

They usually offer a specific percentage off based on the price of the item. For example, an item that costs $49.99 might have a sale of 20% off, while a lower priced of $24.99, item might have a sale offer of a 10% discount.

By SauteePan — On Aug 05, 2010

I think it is funny how we are conditioned to accept a price ending in 99 rather then an even number. For example, virtually every infomercials sells its products for $19.99.

I don’t know why, but maybe $19.99 feels like a much better value than $20.00 even though there is only a one cent difference in price.

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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