What is price sensitivity?
Price Sensitivity refers to the price your customer is willing to pay for a product or service. Therefore, price sensitivity is measured by demand. If the demand for a product is inelastic, it means that the consumer is not price sensitive, that’s when you have the chance to raise the prices of your products or services without diminishing the demand. This inelasticity is very common in essential products for living, like food or hygienic products, which people would keep buying even if the prices rise at a certain moment. On the other hand, we can say that a consumer is elastic or more price sensitive, when by changing a little the price, the demand changes a lot. These situations happen usually when the product is not essential, it’s the opposite, a commodity people can dispense , such as electronics or travelling. As we can see, price sensitivity is pretty much determined by the product or service you are dealing with, but that doesn’t mean that you can´t influence the price sensitivity of your customers to a certain extent. In the next paragraphs we will see the factors that can influence price sensitivity and what you can do to work better on it.
Factors that influence price sensitivity
There are some factors that can highly influence the price sensitivity in a customer and you may should consider when having an ecommerce. Here we tell you about 4 key factors:
- Price reference: It’s not new that price is one of the factors that influences the customer most when it comes to deciding between buying one product or another. That’s why it’s usual to have in mind reference prices made out of competitors products. A customer will be more price sensitive to a product if its price difference is much higher in comparison to other options. That’s why it’s important to monitor your competitors’ prices and adapt better pricing strategies
- Product Uniqueness: If your product has something that differentiates it from your competitors or its unique, the customer will be more likely to spend more money on your product because of the difficulty to find it somewhere else. Therefore, you can have the privilege to raise the price without losing demand.
- Effort for the purchase: depending on the effort or difficulty that the consumer has to make the purchase, will value to a greater or lesser extent the product and the purchase or not finally. Although this will also depend on the type of product.
- Evaluation: the fact that the buyer can evaluate the product he has purchased, will also affect price sensitivity, reviews are not always positive, but it is important to consider them all.
How to control price sensitivity
The most important thing to keep price sensitivity under control is to know the market and the consumer you are targeting. For example, by applying a dynamic pricing strategy, you will not only be able to monitor your competitors’ prices, but also check which products are more sensitive than others and set the best prices possible for your product and consumer.