Price sensitivity is the degree to which consumers’ behaviors are affected by the price of the product or service.
Price sensitivity – also known as price elasticity of demand and this means the extent to which sale of a particular product or service is affected. Another way of explaining price sensitivity is, “the consumer demand for a product is changed by the cost of the product. Price sensitivity testing helps the manufacturers, suppliers and distributors to study the consumer behavior and assists them in making good decisions about the products. The level of price sensitivity varies and depends on various products and consumers.
global vox populi concept of price sensitivity
- “cost plus” pricing – requires companies to make regular adjustments as their costs increase. Some cost charges like rent hike or collective bargaining agreement can, however, impact market participants in different ways thus forcing some companies to heave their prices more than the competitors.
- “competitive pricing” – it involves setting prices on the basis of price set by the competitors. This approach can, however, be problematic if the pricing does not reflect imperative differences in what is being proffered.
These pricing strategies depend largely on subjective judgement of the management instead of depending on data-driven empirical evidence determining the impact of distinctive pricing levels on demand.
Price sensitivity is measured by dividing the percentage in the quantity purchased of the product or service with the percentage change in the price.