Price thresholds: what happens at round-number prices

Some prices feel bigger than they are. Moving from $1.99 to $2.00 is one cent, yet many pricing teams believe it lands differently with shoppers than moving from $1.89 to $1.90. Price thresholds are those points, usually round numbers, where a small change in price seems to have an outsized effect on sales.

Whether a threshold exists for your item, and how strong it is, is an empirical question. Scan data can help answer it, as long as you're careful about what you compare.

What is a price threshold?

It's a price point where demand appears to change more sharply than it does at nearby prices. Common candidates are the whole-dollar marks, the five-dollar mark, and prices ending in 99 versus 00. The general idea is that shoppers group prices into bands, and crossing into a new band feels like a bigger jump.

The concept connects to price elasticity of demand, which measures how much volume responds to price. A threshold is essentially a spot where elasticity looks unusually high.

How do you study thresholds in scan data?

Independent retailers set their own prices, which means the same UPC often sells at different prices in different stores at the same time. That natural variation is useful.

One approach is cross-sectional. Group stores by the price they charge for an item and compare velocity per store across the groups. If stores at $1.99 sell noticeably more per store than stores at $2.09, while stores at $1.89 and $1.99 sell about the same, that's a hint of a threshold at $2.00.

Another approach is before and after. Find stores that moved an item's price across a round number and compare their sales before and after against stores that didn't change price. This is closer to a controlled test and usually more convincing.

A hypothetical: 30 stores raised an item from $1.99 to $2.19, and their weekly units per store fell from 20 to 15. Over the same weeks, 30 stores that kept the price at $1.99 went from 20 to 19. The change that belongs to the price move is closer to four units than five.

What could fool you?

Store differences, most of all. Stores that charge higher prices may also differ in location, traffic or the mix of shoppers they serve. If high-price stores sell less, it might be the stores rather than the price.

Pack changes are another trap. If an item's price moved because its size changed, you're looking at a different product. Check that the UPC and pack stayed the same.

Promotions and seasons can also coincide with price changes. Excluding promoted weeks and comparing against control stores in the same period removes most of that noise.

Finally, small samples. If only a handful of stores sit at a particular price, one unusual store can create or hide a pattern. Treat thin price groups with caution.

What would you do with this on Monday?

Map the current store-level prices for your top items. Look for clusters just below and just above round numbers. If you see many stores sitting right at $1.99 and few at $2.09, that's a pattern worth studying.

Then look for any past price moves across a threshold and compare those stores against steady-price stores. If the evidence suggests a threshold, share it with your sales team and distributor, framed as a finding from a comparison and not as a rule. Background reading from NRS Insights and its news page can add category context.