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How Price Points Can Trick Us Into Making a Purchase | Psychology Today

“Five dollars is a magic number.” — Unnamed restaurant industry consultant.

Thanks to decades of behavioral economics research, we now know that microeconomic theories often fail to describe actual buying behavior. For instance, a basic microeconomic theory postulate is that as prices go up, demand should go down. In the real world, however, this is frequently not the case.

A great example of such irrational consumer behavior is how people react to price points. In this blog post, I want to explain what a price point is and how it influences our purchasing behavior. I’ll do this with the fascinating story of a Subway franchise owner’s accidental discovery of a powerful price point.

What is a price point?
A price point is the price level that is so well-known and well-accepted by consumers that they consider it to be the normal or usual price for the product. Consumers use the price point for making buying decisions with little or no cognitive effort. Around $5 for a meal, a dollar a day for news, coffee, shaving, etc., and $1,000 for a computer are all popular price points in the United States.

Price points are influential for the simple reason that consumers prefer to buy products at the price point than at other higher or lower price levels. In the fast-food industry, $5 is widely regarded as a powerful price point for a meal. Most fast-food operators sell a meal at this price point. Dairy Queen’s 5 buck lunch, Subway’s $5 footlong sandwich, McDonald’s McPick $5 for 2 menu, KFC’s $5 Fill ups, and Dunkin’ Donuts’ Go2 deals are all based on this price point, as is the Taco Bell Chalupa Cravings box (see the ad video).

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How Price Points Can Trick Us Into Making a Purchase | Psychology Today.

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