Price point

The suggested retail price of a good or service is called a price point. It is typically established in line with what other businesses are charging for similar goods and services or what they are charging for alternatives. The seller's profit margin should be maximized at the optimal pricing.

A seller conducts experiments at different price points to determine which one yields the highest degree of total profit in order to determine this ideal point. Over time, this price point could need to be adjusted in response to other parties' setting pricing for comparable goods. Rarely, raising a price point will lead to an increase in the quantity sold.

This often only occurs when the products are thought to be exceptionally high-end, in which case status-conscious buyers are more inclined to pay a premium price than a lower one.

Significant Insights

  • A price point is one hypothetical price that is chosen from a range of potential suggestions for a good or service, some of which could bring in more money than others.
  • It is often obtained by monitoring how the supply and demand curves interact.
  • It aids in the business's assessment of the potential profit margin for its good or service.
  • Even though the terms are frequently used interchangeably in everyday speech, a producer or merchant seeking to set the price of a good or service should be able to distinguish between the two.

How should the price point be determined?

When adjusting the price point (PP), including profit margin, the company has to invest a lot of time and energy in analyzing market conditions and determinants. The greatest profitable price for a good or service can be found by taking into account a number of variables, including competition, unique selling proposition, and market research.

Example of Price Point

Let's take the example of a five-star hotel that wants to increase its earnings:

  • The hotel is already aware that, after accounting for all factors, the average input cost for one room per day is $3,000.
  • At the moment, a single room at the hotel costs $5,000 on average per day. The motels often draw 50 guests a day at this price.
  • If the price were dropped to, say, $4,500, the hotel could be able to accommodate 60 people, which would raise its revenue.
  • Conversely, lower rates do not always translate into increased incomes. Because it wants to maintain its prestige brand in order to draw in high-end visitors, the hotel in this case does not want to lower the price below $4,000.