Did you know that there are researchers out there who spend their time trying to figure out which price points are most likely to get you to make a purchase?
It’s true. Though it seems like coming up with a price would be easy, there’s actually a lot that goes into it. In addition to figuring out supply and demand basics, companies also want to take advantage of some good old-fashioned human psychology to influence your purchasing habits.
If you’re not careful, you could move a lot of items into your shopping cart that aren’t actually a very good deal — even though their price tags make you think they are.
To avoid spending more than is strictly necessary, take a look at the science of sales pricing so you can recognize when you’re getting a truly excellent sales price — and when you’re being manipulated.
At its most simple, pricing comes down to adding up all the costs that go into producing an item and then tacking a profit margin on top of that. For a kid’s lemonade stand, it’s easy: Add up the cost of sugar, lemons, water and paper cups; then divide that total by the number of cups you can get out of those ingredients. If you’re really fancy, you’ll figure in the cost of poster board and markers used in advertising, too. Then you add to the per-cup cost so that you actually make more than you spend on raw materials, and you’ve got your price.
It’s basically the same for big businesses, but their overhead expenses are more complicated. There’s also the price of utilities, factory costs, employee benefits, and a whole lot of other factors. Savvy retailers also pad that profit margin at first so they have plenty of room to drop their prices for sales later and still make money.