Real-world examples of price sensitivity influencing pricing decisions can be seen in various industries. For instance, in the airline industry, airlines often adjust their ticket prices based on demand and time of booking. During peak seasons or closer to the departure date, prices are usually higher due to increased demand. Similarly, in the retail industry, stores often offer discounts or sales during certain periods to attract customers and increase sales. This is because customers are more likely to purchase items when they are discounted, showing a high level of price sensitivity. Another example can be seen in the luxury goods industry, where products are often priced high to maintain a sense of exclusivity and quality. Here, customers show low price sensitivity as they are willing to pay a premium for these products.
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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.