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There is a phenomenon used in Economics(?)/Marketing/Pricing/Psychology when selecting the right price for your product. Within a certain price range, the customer is insensitive to changes in the price, considering the price or changes in it as too low and insignificant.

Also within the same (acceptably low) range, the customer makes an easy purchasing decision since the price is too low to affect one's budget - I'd call it a "spare change" item here.

For example, in NZ for the top 10% of the market, products below NZ$10 are automatically considered to be "spare change" facilitating customer's trying a new product within that price range. As a seller it will be rational to price your product up to 9.99 than to settle on anything lower than that number.

What's the name of this phenomenon/term describing this sweet-spot price range?

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  • $\begingroup$ If you do a web search for “charm pricing,” you should be able to find some research mentioned. (Charm pricing - price an ebook at $1.99 and not $2.) Maybe not exactly what you are looking for, but it would be in the general area. I sell books, and charm pricing is apparently enforced in some stores (I go through a distributor, so not sure). $\endgroup$ – Brian Romanchuk Oct 27 at 11:50
  • $\begingroup$ @Brian thank you, it's great to know. Just to confirm if this although related not quite the same term? If that "spare change" level is say <$5.00, charm pricing would be a more general term covering not only 4.99 but also 0.99, 1.99 etc. If that's the case, I'm after a more narrow term. I just can't seem to find it, if it exists! $\endgroup$ – afora377 Oct 28 at 0:59
  • $\begingroup$ It’s not the same thing, it’s just why prices often end in .99 (although the custom varies). But discussions of charm pricing might also lead into what you are discussing, although I haven’t heard it put that way. $\endgroup$ – Brian Romanchuk Oct 28 at 1:58
  • $\begingroup$ There may be some confusion here with left-digit effect. The claimed phenomenon here seems to be that there is some price \$X, left of which demand is perfectly inelastic, so that there is a kink in the demand curve. I doubt that such a phenomenon exists in the real world (and I suspect it is being confused here with the existence of the left-digit effect). $\endgroup$ – Kenny LJ Oct 28 at 4:02
  • $\begingroup$ The supporting intuition here seems to be that when people are rich enough, they don't care about whether something costs \$0.01 or \$9.99. But it seems unlikely that this is ever true of all potential buyers of that good. $\endgroup$ – Kenny LJ Oct 28 at 4:07
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A related concept you might be looking for could be "mental accounting", first introduced by Richard Thaler.

According to mental accounting, people treat money as less fungible than it really is. Fungibility means that, all money is the same, regardless of any other factors, including intended use. However, people often budget money into mental accounts for expenses (e.g., saving for a home) or "spare change".

In your example, the average person in NZ may have a 10$ mental account for "spare change".

How optimal pricing works in behavioral theory is another discussion altogether though.

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  • $\begingroup$ @King, will a term like "maximum spare change price point" or "spare change price point" make sense? I cannot seem to find anything online, and this is beyond an undergraduate textbook in complexity. $\endgroup$ – afora377 Oct 28 at 1:43

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