Key Terms
Perceived benefits include
Status, convenience, brand, quality, choice, and "the deal."
Perceived costs include
Actual price, inconvenience, poor service, limited choice, risk of a bad decision, and related costs (like driving out o
Why it works
When buyers have limited information, the brain reads $39 as meaningfully cheaper than $40. The nine signals a deal with
Limits of the nine
It has less effect when the product has an established price history, when the item is already on sale, or when buyers s
Researcher Itamar Simonson
"The mere fact that we had asked them to make a comparison caused them to fear that they were being tricked in some way.
Break-even price
Price that covers all costs at a given production volume. No profit, no loss.
Fixed costs (FC)
Costs that do not change regardless of production volume. Rent, salaried labor, equipment.
Variable costs (V)
Costs that change with production volume. Raw materials, per-unit packaging.
Break-even quantity
N = FC / (p - V)
Where
P = price per unit n = number of units V = variable cost per unit FC = total fixed costs
Fixed costs
$500/week (kitchen rent + labor) Variable cost: $0.05 per cookie Production capacity: 2,500 cookies/week Price set at: $
Cost orientation
Add a markup to break-even price. Simple, but ignores what customers will actually pay.
Competitor orientation
Match competitors' prices. Simple, but ignores the unique value your product may offer.
Customer orientation
Use break-even as one input; factor in customer perception of value and competitive context. Most complete approach.
Works when
A meaningful segment is price-sensitive AND the company has a real cost advantage through efficiency or reduced services