Price Point: Meaning, Examples & How It Works

When running a business in the retail sphere, everyone wants to maintain a high profit margin without losing customers to competitors. How can you figure out the perfect price for a product to keep both you and your buyers satisfied? You need to find the right price point for your stock. In this detailed guide, we will discuss what a price point is and review its example, discuss why it is important for business, and how to calculate it efficiently.

There are various definitions of a price point. The most common one is ‘the suggested retail price of a service or product’. Another one defines a price point as ‘the most balanced cost that maintains the highest demand and an optimal profit margin’.

This is a price which customers are willing to pay for a particular product over competing products. Briefly, a price point represents the best option for buyers who want to buy a product at an agreeable price, and for retailers that strive to earn as much as possible and outperform competitors.

Price point is based on the metrics of the supply and demand curve, but depends on many more economic factors, such as quantities demanded, quantities supplied, substitute product’s prices, and gross margin per unit.

Although a price point is also the cost of a product, it is not the same thing as any price. It is a specific point in the range of all possible prices that follow the supply and demand curve. It is the golden middle that allows a retailer to maintain sales volume and profit without losing customers to competitors. Once a price point is chosen, it becomes the product’s price.

To fully grasp the meaning of price point, it helps to visualize it along the demand curve—a line that shows how consumer interest changes at different price points on a scale. Each point on a scale represents a unique combination of demand levels and potential profit margins. A lower price point may attract more buyers but reduce per-unit profit, while a higher one can improve margins but decrease overall sales volume.

In practice, no company can define its exact demand curve through theory alone. Real-world markets involve uncertainty, changing preferences, and competitor pricing strategies. That’s why businesses rely on market testing instead of purely theoretical pricing to identify the most effective strategic price for their product’s price point. Through testing and market research, companies compare similar products and assess how each price set impacts both conversion rates and perceived value—the key proposition behind successful pricing.

When searching for the ideal price point, you should take into consideration a few crucial aspects.

The first step on the way to figuring out the best price is to assess your business goals. When you’re considering a product’s price, ask yourself a few questions:

• How much should the price of a particular product justify your expenses?
• Do I have any information on price elasticity for the item?
• To what extent is my audience price-sensitive?

With this information in mind, you can calculate the minimum price that allows you to make profit and perform adjustments when you proceed with A/B testing (we will discuss it below).

Note that such a thing as a ‘perfect price’ does not exist. Pricing is far more complex, as it depends not only on the supply/demand curve, but also market specifics, competitors, marketing, industry, etc.

Only after analyzing the whole gamut of details involved in selling the product in question can you accurately calculate an optimal price point that will satisfy your target audience and also be profitable for your business.

When analyzing the meaning of price point, understanding price elasticity is essential. Price elasticity measures how demand shifts in response to price changes, revealing the market’s sensitivity to adjustments in a product’s price point. A highly elastic product sees sharp drops in demand when prices rise, while inelastic goods—like necessities—maintain sales even with higher prices. This relationship helps businesses determine which point on a scale yields the best balance between sales volume and profitability.

Several factors influence market sensitivity and elasticity: the availability of substitute products, consumer income levels, and brand loyalty. Premium brands, for instance, often sustain higher selling prices because their value proposition extends beyond cost. To assess real-world elasticity, companies use market research, A/B pricing experiments, and elasticity testing with segmented audiences.

By analyzing competitor pricing strategies and observing customer responses, firms can adjust the price set to achieve a more strategic price that aligns with both consumer expectations and business goals. When data shows that a lower price point drives only marginal demand increase, it signals room for price optimization—finding that sweet spot where customer value and company profit meet.

Competitor analysis is a cornerstone of any successful price point strategy. To identify where your product’s price point fits within the market, start by analyzing competitor pricing strategies and observing how similar products are positioned across various points on a scale. A thorough market research approach helps you uncover hidden pricing patterns — such as when competitors use lower price points to capture market share or premium pricing to reinforce brand prestige.

To outperform your competitors, you might be tempted to take into account their price tags and start charging lower. However, it’s not always the best decision! According to a study by McKinsey, 80-90% of wrongly chosen prices are too low. So avoid underpricing your goods, because:

• afterwards, it will be more problematic for you to raise the prices without compromising sales volume;
• you risk having your product devalued in customers’ eyes;
• it may seriously affect your profit margin.

Effective market segmentation is key to building a successful price point strategy. Different customer segments perceive value differently and respond uniquely to pricing. For example, while a lower price point might attract price-sensitive buyers, premium shoppers often associate higher selling prices with superior quality and exclusivity. Understanding these behaviors helps businesses position their products strategically across varied market tiers—from budget to mid-market and premium offerings.

The meaning of price point changes depending on customer demographics and purchasing power. A single product’s price point may not fit all markets, so companies use market research and behavioral data to design flexible price hierarchies. These hierarchies allow brands to offer similar products at different price sets, targeting each demographic efficiently. By aligning every strategic price with customer expectations and competitor pricing strategies, businesses can strengthen their market positioning and deliver a compelling proposition across all points on a scale.

As mentioned above, the perceived value of your product is directly connected to the price. Positioning your brand may be another starting point for developing your pricing strategy. Is your product a premium one that’s intended to last longer or provide more features than its analogs? Or maybe you’re targeting lower market segments and developing cheaper alternatives than your competitors? Consider pricing based on your desired brand image.

You can use the price quality matrix as a basis of your pricing approach, or use other pricing philosophies to develop a price point that helps you build a certain brand reputation. Also, you can try dynamic pricing to figure out what works best. Make sure to follow your business goals and profit objections — neither of them should be compromised when you are trying to establish product value perception.

Understanding the psychological pricing dynamics behind a product’s price point is just as important as analyzing costs and competition. Consumers rarely view prices rationally; they interpret them emotionally, associating certain price points with value, quality, and even social status. This is where anchoring effects play a crucial role — when shoppers see a higher initial price, a subsequent selling price appears more reasonable, creating a stronger sense of perceived value.

A strategic price can subtly influence price perception by signaling exclusivity or affordability. For instance, premium beauty or fashion brands intentionally avoid a lower price point to maintain a sense of prestige, while budget retailers use rounded numbers to suggest transparency and trust. Cultural and regional contexts also affect how customers interpret prices — what feels “fair” in one market may seem expensive in another.

By combining market research with consumer psychology, brands can fine-tune their price set to align with customer expectations and behavioral patterns. When the meaning of price point connects with emotional cues — such as quality perception, value confidence, or aspirational appeal — businesses can transform a simple number into a powerful proposition that drives both loyalty and conversions, outperforming competitor pricing strategies across every point on a scale.

Lastly, it’s important to know who your average buyer is. Depending on the market segment, too low or too high price points can repel customers and make them misunderstand the product positioning. The pricing should align with the expectations of your target audience.

It is impossible to establish the right price point without testing, because analyzing the supply/demand curve is not enough in today’s highly competitive markets. You need to act in real-world situations, so a little bit of experimenting is a must.

Here’s how to get started and follow through with your strategy:
1) Study the market and consider all the details before suggesting your first price point.

2) Try charging different prices adjacent to the reference price point and see which one generates more profit while allowing you to stay competitive.

3) Keep monitoring the efficiency of the chosen price point in response to competitors’ actions and market conditions.

4) Try to keep your price point not too far from the average market price of the product.

5)Maintain the balance and remember that pricing your products too low can result in losing your profit margin, while overpriced items discourage customers and make them choose your competitors instead.

It’s essential to do A/B testing, at least on a basic level. Compare at least two price tags: see how buyers react to them, analyze the demand curve, and keep track of the reviews. This way, you can monitor your competitors’ pricing, as well as your customer experience, which is even more important.

As an example, let’s look at a premium shoe brand.

• A premium shoe brand knows that its average input for one pair of shoes is $350.
• Currently, the brand charges $1,500 per pair. At this price, it has about 90 buyers per day.
• Lowering the price to $1,000 would increase the number of buyers to 120.
• The brand could lower its price to $700, but it doesn’t want to go too low, because it plans to retain its premium status by targeting upper market segments.

Finding the ideal price point is essential for any business looking to maximize profits while staying competitive in the market. Even an eMarketer survey states that price optimization is the thing which is directly tied to a company's revenues. Priceva offers advanced pricing solutions to help businesses identify and maintain the most effective price points across their product range. One of the core features that Priceva provides is price comparison with competitors. By monitoring competitor prices in real time, Priceva allows businesses to gauge where their products stand in relation to the market. This ensures that your price points are not only competitive but also aligned with market expectations, which can help attract more customers while safeguarding profit margins.

Another crucial tool is repricing automation. Priceva’s automatic repricing feature lets businesses dynamically adjust their price points based on user-defined formulas and market fluctuations. This tool helps you maintain an optimal price point even when market conditions change, preventing price erosion or missed opportunities for increased profits.

Calculating the price point for a product can help you find the golden middle between your profit margin goals and customers’ willingness to purchase your product. It can be hard to consider all the variables underlying the price formation process, but you need to focus on three major aspects: study the competitors, define your target audience, and perform testing.

By the way, there’s no need to do labor-intensive manual price analysis — save your team dozens of hours by automating this task. Use Priceva’s price tracker: it will help you monitor competitors’ rates and send you notifications about changes to prevent price wars. Plus, it presents all data in the form of convenient tables and provides optimal price recommendations. Price tracking is faster and easier than ever!

To come up with a reference price point, you should calculate the total input, study the market, and define how you want to position your brand. After that, you should test several price points (at least two) to see which one works better for you.

The right price point for a product is the price that allows you to maintain the highest sales volume at the maximum profit margin. In other words, it’s the price that allows sellers to achieve a balance between what customers are ready to pay, and what helps them reach their business goals.

This is the average price at which you sell your goods or services over a certain period of time. It is important to keep tabs on this metric, because it reflects demand at different prices and shows how it influences your profit margin.

An Opening Price Point (OPP) is the lowest price of a particular item in a certain lineup, for example, TV sets or hand creams. It is used by retailers to attract customers and establish the perception of value through higher price points for other products in the same category.

To avoid repelling customers with a growing price point, it is important to choose the right timing and find ways to make the difference less pronounced. For example, some retailers play the numbers game (setting prices like $9.99), add improvements to items to justify the price, offer discounts to trigger sales, and so on. Alternatively, they can reduce the size of the product and leave the old price, or bundle their products.

To avoid repelling customers with a growing price point, it is important to choose the right timing and find ways to make the difference less pronounced. For example, some retailers play the numbers game (setting prices like $9.99), add improvements to items to justify the price, offer discounts to trigger sales, and so on. Alternatively, they can reduce the size of the product and leave the old price, or bundle their products.

You can test multiple price points through A/B testing, segmented offers, or limited-time promotions. Gradual adjustments, rather than sudden jumps, help gauge customer reactions. Using market research and competitor data ensures pricing experiments align with customer expectations and preserve trust.

A product is more price elastic when substitutes are widely available, or the product isn’t essential. Other factors include low brand loyalty, higher market sensitivity, and easily comparable features among similar products. Necessity, uniqueness, and emotional value generally reduce elasticity.

Priceva’s AI-powered analytics help businesses identify ideal price points by tracking competitor pricing strategies, demand shifts, and market reactions in real time. The platform enables dynamic pricing adjustments and price optimization, ensuring your selling price aligns with customer expectations and profit goals.