Price sensitivity is a well-known topic both for offline and online shops. Even if you have never focused on it before, we are sure you have noticed it while running your business.

Why price sensitivity is so important

Many aspects need to be taken care of when thinking of generating sales. One of the most important things, besides the product appearance and relevance, is setting the price. Price sensitivity is connected directly to the elasticity of demand. The prices have a relevant impact on if sales go up or down. That is why setting the best possible price is so important, especially when dealing with customer who is price sensitive. If the price is too high, customers might refuse to buy your products just like that.

Of course, some products and segments aren’t that price-sensitive. But for the first group of consumers, we can apply different pricing strategies and have a great influence on shopping activity.

Understanding the price sensitivity of your service or products allows you to be aware of how the changes may impact purchasing behavior of your clients. Knowledge about sensitivity lets you set the best possible price ranges and maximize the profit of your business or ultimate sales volume.

Most fundamental factors 

There are most fundamental factors for the price sensitivity of a service or product:

  • Geography – the region where you sell products. You need to adjust price points accordingly given countries that are much less sensitive to prices when quality goes in
  • Economics – the current economic situation of the market and customers. That can not be separated from the current status quo when setting prices
  • Sentiment – the best case is Apple. They can highly overprice its products as there is a massive endorsement for their brand
  • Necessities – think about the position of your brand and articles in the context of a target group you want to reach. Necessities prices deal with much higher price sensitivity than luxury goods because of the proportion of net income that the consumers may spend. Items that absorb most of the regular budget spendings tend to have higher elastic demand.

Price sensitivity in your pricing and marketing strategy

All factors mentioned above are linked directly to every aspect of your marketing activities and help to improve business decisions. Awareness of which factors exactly have the highest impact on the price elasticity of your products and services is a key to knowing your prices accordingly while keeping in mind the profile of your customers. However, lowering the price to achieve growth in sales is not always the most efficient move as it depends on the product itself. Think about branded goods that are treated as “special”, “exclusive”, or “premium”. Applying a price cut to them could lead to opposite sensations and harm the perception that users have. 

One additional thing that needs to be kept in mind is that once a price is lowered it is rather difficult to increase it back in the fAn additional thing that has to be in mind is that once you lower a price, it is much difficult to increase it back. Therefore, applying a short-term price adjustment like promotional discounts and coupons gives much better flexibility. An even better solution is all kinds of loyalty promotions with discounts for a given action, like joining membership or newsletter sign-up.

Prica price monitoring software is a great tool to understand nuances of the pricing game and what level of prices to achieve to reach the perfect sweet spot of your sele.