How Well Do You Know Your Customers’ ‘Price Sensitivity’?
Price sensitivity is a key measure in most industries, especially those with many competing products (FMCG, for instance). Price sensitivity is measured in the economic theory via price elasticity of the demand function. In other words, how demand for a given product is affected by a change in price. High elasticity means consumers are willing to purchase even with increased costs. Inelasticity, on the other hand, means even a small price bump will significantly reduce purchasing. What we want to find is the ‘equilibrium price’, the point where supply and demand meet to maximize revenue. There are many factors to consider when discussing price sensitivity: competition, uniqueness of the product(s), buying process, etc. Other things to consider could be shared cost, like when a group…
