Price sensitivity can be used to optimize pricing models by understanding how changes in price affect the demand for a product or service. This can be determined by dividing the change in demand quantity by the percent of change in price. This gives an indication of how sensitive customers are to changes in price. By understanding this, businesses can adjust their pricing models to maximize profits. For example, if customers are highly sensitive to price changes, a business might opt for a lower price to increase demand. Conversely, if customers are not very sensitive to price changes, a business might be able to increase prices without significantly affecting demand.
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