Price sensitivity is a well-known topic for both offline and online stores. Even if you have never paid attention to it before, we are sure that you have noticed it while running your business.
Why price sensitivity is so important
When thinking of increasing sales, there are many aspects to consider. But one of the most important points, besides the quality and appearance of the goods, is the price adjustment. Price sensitivity is directly related to the elasticity of demand. Prices have an essential impact if sales go up or down. That is why it is so crucial to set the best possible price, especially when dealing with a price-sensitive customer. If the price is too high, customers may simply refuse to buy your product.
Of course, some products or product segments do not need a price-sensitive approach. But for price-sensitive consumers, it is best to use different pricing strategies to get the expected impact on their shopping decisions.
Understanding the price sensitivity of your service or product allows you to be aware of how changes may impact purchasing behavior of your clients. Knowledge about sensitivity will allow you to set the best price ranges possible and maximize your business profit or sales volume.
Most fundamental factors
The most fundamental factors for the price sensitivity of a service or product are:
- Geography – when adjusting prices, consider the region you want to sell. For example, if you plan to sell in India at a high price point, that would not be as profitable because Indians are more sensitive to prices. However, in Europe, you can charge more for products even though the quality remains unchanged from what was originally offered.
- Economics – the current economic situation of customers and the market. You can not be separated from the current status quo when setting prices.
- Sentiment – the best example is Apple and its product lines. They can highly overprice their goods as there is a massive endorsement for the brand.
- Necessities – think about the position of your brand and products in the context of the target group you want to reach. The prices of basic consumer goods are much more price-sensitive than luxury items due to the share of net income that consumers can spend. Products that absorb most of the regular budget spending tend to have more elastic demand.
Price sensitivity in your pricing and marketing strategy
All of the factors mentioned above are directly related to every aspect of marketing activities and can help improve your business decisions. Knowing exactly what factors have the biggest impact on the price elasticity of your products or services is key to understanding your pricing correctly in relation to the profile of your customers. However, lowering the price to increase sales is not always the most effective move, as it depends on the product itself. Think of branded goods that are seen as “special”, “exclusive” or “premium”. Applying price cuts to such products can lead to opposite feelings and damage consumer perception of the brand.
Another thing to keep in mind is that once you lower a price, it is hard to raise it again. Thus, applying short-term price adjustments such as promotional discounts or coupons gives much more flexibility.
Even better solutions are all kinds of loyalty promotions and discounts for a given action, such as membership or signing up for a newsletter.
Price monitoring software is a great tool to help you understand the nuances of the pricing game and the price levels you need to achieve. Monitor prices in order to set the best pricing strategy and reach the perfect sweet spot of your sales.