Question
Price sensitivity, also known as price elasticity of demand, is a measure of how much the quantity demanded of a good responds to a change in the price of that good. If a product has high price sensitivity, it means that consumers are very responsive to changes in price, indicating a high elasticity of demand. Conversely, if a product has low price sensitivity, consumers are less responsive to price changes, indicating a low elasticity of demand.
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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.
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