Economics Asked by afora377 on March 25, 2021
There is a phenomenon used in Economics(?)/Marketing/Pricing/Psychology when selecting the right price for your product. Within a certain price range, the customer is insensitive to changes in the price, considering the price or changes in it as too low and insignificant.
Also within the same (acceptably low) range, the customer makes an easy purchasing decision since the price is too low to affect one’s budget – I’d call it a "spare change" item here.
For example, in NZ for the top 10% of the market, products below NZ$10 are automatically considered to be "spare change" facilitating customer’s trying a new product within that price range. As a seller it will be rational to price your product up to 9.99 than to settle on anything lower than that number.
What’s the name of this phenomenon/term describing this sweet-spot price range?
A related concept you might be looking for could be "mental accounting", first introduced by Richard Thaler.
According to mental accounting, people treat money as less fungible than it really is. Fungibility means that, all money is the same, regardless of any other factors, including intended use. However, people often budget money into mental accounts for expenses (e.g., saving for a home) or "spare change".
In your example, the average person in NZ may have a 10$ mental account for "spare change".
How optimal pricing works in behavioral theory is another discussion altogether though.
Answered by BB King on March 25, 2021
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