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Price Boundaries

 

DisciplinesMarketing > Pricing > Price Boundaries

Description | Example | Discussion | See also

 

Description

We see prices as delineated by boundaries, and then disproportionately perceive items priced either side of a boundary (and especially if the price is close to a boundary). In this way, if we see $20 as a boundary, $19 will be seen as much cheaper than $21 than when we compare, say $17 and $19 or $21 and $23.

Boundaries often appear at particular tens, notable with 1, 2, 5 first digits, for example $10, $20, $50, $100, $200, $500 and so on. They may also appear at fraction points, such as $25 (a quarter) and $75 (three quarters).

Lower boundaries can also exist, below which things seem cheap. This can lead to higher sales, although it may also cause a confusion effect in which people equate 'cheap' with low quality and hence are less willing to buy.

Boundaries are often created naturally within markets where many products from different suppliers all fall within a clear price range, thus creating a default expectations for lower and upper price boundaries. Market boundaries are also driven by factors such as price sensitivity, product performance and social desirability, all of which can be seen in price boundaries.

Example

After some experimentation, a shop prices certain products at $24 as it finds that many less are sold when the price is $25.

A large computer store sells sub-$200 machines into a price-sensitive market, with a separate display section for $1000+ machines in a completely separate area for

A cider manufacturer increases the price of it's cheap drink, coupled with an 'exclusive' marketing campaign and sells far more of its products.

Discussion

Our numeric system is based on the number ten, which is how many fingers and thumbs we have. This creates a natural boundary effect, particularly when the number of digits increase, such as from 99 to 100. Other simple patterning may also create unconscious boundaries such as with fractions (which is why $49 easily seems much less than $51).

Psychological boundaries can be created for all kinds of reasons, from experience to market and social norms. All it needs is for a number to become internalized as being a boundary, with items below and above it being perceived differently. Marketing and sales often aim to use common existing boundaries or to create new ones.

Negotiation often uses boundaries for example in the perception of agreement zones within which all parties may find a compromise where a deal can be agreed.

See also

The Price-Quality Graph and the Fair-Value Line

 

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