Price Point

What are you willing to pay for shoes? There are many things to consider: comfort, availability (in your size), style, and price. Sometimes, low comfort and high price are acceptable if the style situationally is most important (think: red stilettos for February 14th). In other situations, price and availability are the key variables (flip-flops at Walgreens in summer, for cheap).

Fast-forward to next year. The prices of both the red stilettos and the flip-flops have increased. For the firm selling red stilettos, this was a smart move. While the increase in price caused demand to drop a little, their overall revenue from red stilettos was still more this year than last year. So it was worth it.

The flip-flops are another story—everyone substituted Walgreens flip-flops for the cheaper Walmart flip-flops. Demand for the Walgreens flip-flops dropped a lot, and they made less revenue from them this year compared to last year. That means the sales dropped more than the proportional price increase, so...not worth it. Whoops, shouldn’t have passed the price point.

A company’s price point is the point at which, if a company raised the price of a product, it wouldn’t be worth it: the sales decreased more than the proportional amount of the price increase. Not very profit-maximizing of them.