What is a Price Point and How to Use It?
Not many terms cause the amount of confusion like the price point. Most of the time, people are not sure if they should use price point or simply “price” to describe what they have in mind. Price is a wider term than price point, and to a certain extent, these two terms can be even considered synonyms.
In the following paragraphs, we will try to explain what is a price point and is the price point different from the price. After the definition of price point, we will provide some practical ideas on how you can use price points to better understand your competitors and the market.
Price Point Definition
There are many different definitions of a price point. A price point is the suggested retail price of a product or service. Some other people refer to the price point as a retail price (doesn’t have to be the suggested one). What all the uses of this term revolve around is the idea that it is connected to the demand curve.
To sum it all up, a price point is the price of choice among all the possible prices for a product.
Price point vs. Price
So, is there any difference between a price point and a price? Well, yes and no. The price point is not just any price, it is a specific price you choose on the scale of possible prices following the demand curve. When you pick your price point, it becomes the price of your product.
What the history of individual price points can tell you?
Carefully looking and analyzing the pricing points of your competitors as well as the history of individual price points, can provide you with a lot of valuable information you can use to create a better pricing strategy. For example, you can find out who is the leader in pricing, you can know when a competitor is running a promotion or is out of stock. You can even get valuable insight into your competitors’ pricing strategy and see if they are using psychological pricing, competitive pricing, or some other pricing tactic.
It is impossible to keep track of your competitors’ price points and create some history charts manually. However, if you automate this process by using a price monitoring tool, it becomes very manageable. When you (or your software) gather enough data you will be able to create a chart that would show the history of individual price points.
For the purpose of explaining, we prepared one such chart from Price2Spy.
Who is the leader in pricing?
Knowing which one of your competitors is the leader when it comes to setting prices puts you in a great strategic position. But how can you do it? It’s easy – you should only pay attention to price points in the history chart, and you can see who sets the prices first, being a leader, and who follows that leader.
For example, if you look at the image above, you can see that Amazon (blue line) is moving its price point first, while the website marked with the red line follows that movement, readjusting its prices.
Know when a competitor is running a promotion
If you look at the same image, you can also notice that the price point of the product on Amazon went down for a short period of time, and then it went up. This tells you that Amazon was running a promotion on this product. Having such information can help you make a decision if you are going to run a promotion for the same product, or stick to the price point you already have for it.
Know when a competitor is out of stock
Looking at the same image, as well as at the image below, you can also find out when a product is out of stock for one of your competitors. In the image above, this is visible because you can see that, at one moment, the price of the product is 0, which implies that it is out of stock. On the second image, it is even more obvious, since Price2Spy is showing the “Available” column where the availability is marked red or green, depending on the stock status.
As we already mentioned, it’s all about the demand curve. If a product is out of stock at your competitor’s store, and demand stays the same, this means that you have more space to adjust your price point. So, if you can find out when someone got out of stock, you can earn more. It’s that simple.
What pricing strategy a competitor uses?
The essential part of being competitive is performing a good pricing intelligence. This would allow you to get a deeper understanding of your competitors’ pricing strategy by looking at their price points. For example, if you notice that your competitor keeps using the price points ending with a 9, you can be sure that they are using the psychological pricing. On the other hand, if you find the leader in pricing among your competitors, and then look for the others that set the same price as the leader, you can be sure that they are going for a competitive pricing strategy.
Understanding the concept behind the price point can be confusing. However, once you learn how to use information such as your competitors’ price points, you will find yourself at a big advantage. Price2Spy is a price monitoring tool with great experience and expertise in the field of gathering and analyzing your competitors’ price points. Try it free for 30 days, and see what benefits it can bring to your business.