Price Point - Causes

Causes

Three main reasons exist to have price points:

1. Substitution price points
   • price points occur at the price of a close substitute
   • when an item's price rises above the cost of a close substitute, the quantity demanded drops sharply
2. Customary price points
   • the market grows accustomed to paying a certain amount for a type of product
   • increasing the price beyond this amount will cause sales to drop dramatically
3. Perceptual price points (also referred to as "psychological pricing" or as "odd-number pricing")
   • raising a price above 99 cents will cause demand to fall disproportionately because people perceive $1.00 as a significantly higher price