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.

stars icon
43 questions and answers
info icon

Price sensitivity, also known as price elasticity of demand, is a measure of how the quantity demanded of a product changes with its price. If a product has high price sensitivity, it means customers are very responsive to changes in the product's price. If the price goes up, customers are less likely to buy the product, and if the price goes down, they are more likely to buy it. On the other hand, if a product has low price sensitivity, changes in the product's price have little effect on customers' willingness to buy it. Therefore, understanding a product's price sensitivity can help businesses predict how changes in price will affect sales volume and customer readiness to make a purchase.

Price sensitivity can be used to develop effective marketing techniques by understanding the product's real value and the customers' willingness to purchase. High price sensitivity indicates that customers may view the product as overpriced, while low price sensitivity suggests that a higher price will not negatively impact the customers' willingness to buy. This knowledge allows for the setting of optimal prices across every category in the product line and can influence customer behavior through specials, discounts, and other marketing techniques.

Understanding price sensitivity for a business has several benefits. It allows the business to evaluate the real value of their product, which can provide insight into the readiness of customers to make a purchase. It also gives the business the ability to forecast sales volume more accurately. If a product has high price sensitivity, it may signal that customers consider it overpriced. On the other hand, low price sensitivity may indicate that a higher price will not negatively affect customers' willingness to purchase. Most importantly, understanding price sensitivity can help a business set optimal prices across their product line and influence customer behavior through specials, discounts, and other marketing techniques.

View all 43 questions
stars icon Ask another question
This question was asked on the following resource:

Pricing Strategies

Take the most advantageous pricing approach to increase profitability of your organization. Use our...

Download template
resource preview

Download and customize more than 500 business templates

Start here ⬇️

Voila! You can now download this Presentation