What is price sensitivity? Customer price sensitivity refers to how changes in the price of a product or service can influence demand. Simply put, it describes how sensitive customers are to price fluctuations.
Customer price sensitivity refers to how changes in the price of a product or service can influence demand. Simply put, it describes how sensitive customers are to price fluctuations. Understanding price sensitivity is crucial for businesses to set the right pricing strategies to maximize profits while maintaining or increasing sales volume. Don’t forget related article about price as part of 4P marketing strategy.
Customer price sensitivity (also knows as price elasticity of demand) is a measure of how customers react to changes in price. If customers are highly sensitive to price, a small increase may lead them to reduce or stop purchasing the product. On the other hand, if customers are less sensitive, they might continue buying even if the price goes up.
Price sensitivity is influenced by various factors, such as the type of product, customer income, buying habits, and the availability of alternatives in the market. It also varies between markets and between different products.
When there are many similar alternatives available, elasticity tends to increase because customers can easily switch to a cheaper product if prices rise.
Example: In the soft drink market, there are many choices such as Coca-Cola, Pepsi, and local brands. If Coca-Cola’s price rises, customers may switch to Pepsi or a cheaper brand.
Essential products like food, water, and healthcare services generally have low price sensitivity because customers need them even if prices increase. Luxury or non-essential items tend to have higher price sensitivity.
Example: Fuel prices typically have less impact on demand because it’s a daily necessity, whereas luxury fashion items are more affected by price changes.
Strong, well-known brands often have lower elast