What factors influence the level of price sensitivity of a product?

Several factors influence the level of price sensitivity of a product. These include the availability of substitute products, the proportion of the product's cost to the buyer's total income, the degree of necessity of the product, and the frequency of purchase. If a product has many substitutes, buyers are more likely to be price sensitive. Similarly, if the product takes up a large proportion of the buyer's income, they are likely to be more sensitive to price changes. Products that are considered necessities or are purchased frequently also tend to have lower price sensitivity.

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Price sensitivity (a.k.a. price elasticity of demand) evaluates the product's real value which, in turn, provides an insight into the shoppers' readiness to swipe their cards. Knowing the product's price sensitivity gives the power to forecast the sales volume more accurately. The high price-sensitivity signals that customers consider the product or service unreasonably overpriced. And the low price sensitivity signals that the higher price will most likely have no negative effect on shoppers' willingness to purchase the product. But most importantly, knowing the level of price sensitivity allows to set optimal prices across every category in the product line, as well as influence customer behavior through specials, discounts and other marketing techniques.

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Pricing Strategies

Take the most advantageous pricing approach to increase profitability of your organization. Use our Pricing Strategies presentation to outline factors...

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