Finance:Threshold price-point

From HandWiki
Revision as of 17:34, 5 February 2024 by Rtextdoc (talk | contribs) (update)
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)

In economics, a threshold price point is the psychological fixing of prices to entice a buyer up to a certain threshold at which the buyer will be lost anyway. The most common example in the United States is the ??.99phenomenone.g.settingthepriceforagoodat9.99. Though it is effectively ten dollars—especially when you add sales tax—it still appears to the potential buyer to be significantly cheaper than if the good was sold $10.00.[1]

Economists and advertising analysts note that should a company need to increase the price of a product beyond the threshold price-point, it should only be done in small amounts. If a candy bar originally cost 1.99,thenthereisapparentlylittledifferenceinmakingthenewprice2.05 or even 2.25.Thelogicbehindthemoveisthatwhilesomepotentialbuyerswillbelostbytheincreaseinpricebeyondthethreshold,thosethatstaywillnotnoticethedifferenceinpricesbetweenthresholds.Buyersdonotmakejudgementcallsonapercentbasis,sowillnotdifferentiatebetween2.05 and 2.06.However,theydodifferentiateatthresholds.Sowhileyouwouldntnecessarilyloseabuyerjumpingfrom2.05 and 2.06,youcouldloseonegoingfrom1.99 to $2.00. Therefore, companies can actually increase overall profit despite losing customers by increasing the revenue per buyer significantly.

See also

References