Price Threshold

Why this matters for your decision

Staying just below a threshold may give away little revenue and gain a lot of demand. Crossing it may lose more than the higher price brings in. For price increases, tariff adjustments and new launches, it is therefore valuable to know whether and where a threshold lies.

Research shows that prices ending in 9 seem noticeably lower than one cent more mainly when the left digit changes (Thomas & Morwitz 2005). In field experiments, a price ending in 9 increased demand in all three cases studied, more strongly for new items than for familiar ones (Anderson & Simester 2003). Whether such a threshold plays a role for a specific offer, however, is not answered by this.

How to find it

A threshold can only be found if prices just below and just above it are compared. In surveys, people often name round numbers, answers cluster at the same points, and this masks real jumps in the reaction.

In the behavioural test, prices to the left and right of the suspected threshold are shown as separate variants, and each person sees only one price. If measured purchase intent falls much more sharply between two closely spaced prices than between prices further apart, this points to a threshold.

Example

A travel insurance policy is to cost €99 or €109 a year in future, with €89 running as a comparison. Between €89 and €99, measured sign-up intent falls by 5 per cent, between €99 and €109 by 22 per cent.

The €100 mark acts as a threshold here. Going above €100 requires a clear added value that justifies crossing the threshold.

How it differs

Price elasticity describes the average reaction of demand within a price range. A price threshold is a point at which this reaction grows abruptly. The acceptable price range from Van Westendorp describes which prices are considered appropriate, and is not a threshold in behaviour.

The anchoring effect describes how a previously seen value influences an assessment. Thresholds, by contrast, arise from the way people read and classify prices.

Limitations

Thresholds are not a law of nature. Whether a round number has an effect depends on category, reference prices and target group. To detect a threshold reliably, you need prices close together and sufficiently large samples per variant.

A behavioural test only finds thresholds between the prices tested. For items chosen on the shelf next to competitors, the price gap to the neighbouring product also counts, and an offer page does not reflect it.