Introduction

Price sensitivity is how likely you are to buy or sell something at a particular price. And it is important because it helps you know when to sell your stuff and when to hold on to it.

When you buy food, you’re sensitive to the price of food; when you buy clothes, you’re sensitive to the price of clothes. Price sensitivity can have a huge impact on your overall spending habits and your ability to save money.

In this article, we will discuss the meaning and importance of price sensitivity.

What is Price Sensitivity?

Pricing sensitivity refers to how much a product’s price can be affected by changes in the market or other factors. It is also a measurement of how much a product’s price affects its demand.

Price sensitivity can also be referred to as a measure of the responsiveness of a company’s prices to changes in costs and demand, and the effect from the customers’ perspective. It is the ability of a customer to change their purchasing behavior based on changes in the price of a product.

For example, if the demand for your product goes up, then you can raise prices to keep up with that growth. If demand drops, however, then you might have to lower prices in order to get people interested again.

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Therefore, a company with high price sensitivity has customers who buy more products when prices increase and less when prices decrease. A company with low price sensitivity has customers who do not react much to price changes.

Why is Price Sensitivity Important?

Price sensitivity is important because it helps you understand how sensitive a company is to changes in its costs and demand, which can help to determine whether or not your pricing strategy is effective. Price sensitivity can help you determine whether or not your company should be producing more of an item or less of an item than they currently are. 

It also allows you to determine if there are any opportunities for a price reduction or growth through cost reductions or supply increases. This is because if you’re making too much of something and there’s no way for you to match demand with supply, then you run the risk of losing money on every sale—which isn’t good for anyone. 

What Factors Affect Price Sensitivity?

In order to understand the price sensitivity of a product, it is first necessary to define what factors affect price sensitivity. The four main factors that affect price sensitivity are product type, reference price, switching costs, and product uniqueness.

1. Product Type: Different products have different price sensitivities. For example, if you’re selling food, people will often be willing to pay more for premium products than they would for cheaper products.

2. Reference Price: The reference price is the closest comparable item of this type that has been sold before—this helps determine how much lower or higher the new item will need to be priced in order to sell at least as many units as its closest competitor.

3. Switching Costs: These are costs associated with switching between brands when there is no significant difference (e.g., switching from Coke Zero to Diet Coke). If these costs are high enough, then customers may only buy one brand if they have no reason not to do so; however, if these costs are low enough, then customers may switch without any problems whatsoever.

4. Product Uniqueness: Consumers may be willing to pay more for unique products because they feel like they’re getting premium value.

How To Measure Price Sensitivity

Pricing sensitivity is a measure of how easy it is for a customer to change their buying habits when the price of a product changes. It’s calculated by dividing the percentage change in quantity demanded by the percentage change in price. 

It’s important to understand how to measure it because it impacts your pricing strategy. The first step to measuring price sensitivity is to determine which factors affect your product’s price sensitivity. 

For example, product type affects price sensitivity more than reference price does. Reference prices are based on the cost of production and marketing costs—they’re not necessarily what consumers will pay for your product. 

Product uniqueness also affects price sensitivity more than switching costs do, because it means you have an edge over competing products in terms of quality and brand recognition.

Once you’ve determined what factors affect your product’s price sensitivity, you can calculate it using one of two methods: dividing the percentage change in quantity demanded by the percentage change in price or multiplying the percentage change in quantity demanded by the percentage change in price and then dividing that figure by 100% (this method is often called “cost-based pricing”).

Ways To Reduce Pricing Sensitivity

Pricing is a sensitive topic, but there are things you can do to make it less so. Here are some tips:

1. Develop Your Brand: If you’re starting a new business, making sure that your name and logo are recognizable will help people remember it when they’re thinking about your product. The first step is to build a brand that people are willing to pay more for than the competition. If you have a great product, show it off. Don’t just tell people about how great it is—show them! If you sell coffee, for example, consider having coffee tastings at local festivals and coffee shops where you can talk about coffee with the locals. This will help develop an image of who YOU are as a company, which goes a long way toward establishing trust in your brand.

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2. Show The Value of Your Product: Customers will be more likely to buy from you if they think that what you’re offering is worth the price tag on it. This means showing customers why their lives will be better if they buy from you instead of someone else who sells similar products. This could mean demonstrating how much more efficient your company is than others in terms of production time or quality control; it could also mean showing off some amazing customer service experience (like giving away free samples or offering deals on certain items).

3. Emphasize Your Differentiators: There are lots of ways to do this. For example, maybe your product is made with top-quality materials, or maybe it’s environmentally friendly, or maybe it’s just really convenient for your customers because it can be used in a variety of ways (for example, as a light source).

4. Bundle Products Together Where Possible: This way customers don’t have to choose between one thing and another because they think one might not be enough.

How Formplus Can Help With Pricing Research 

Pricing research is a critical part of any business, and the right pricing strategy can mean the difference between success and failure. Without the right information, companies are at a disadvantage when it comes to understanding what their customers want and how they can be served.

Formplus is a cloud-based platform that provides over 1000 survey form templates to help businesses create survey forms that can be used to identify what their customers value, so they can focus on providing them with exactly what they want. Formplus does this by helping you create an intuitive form that allows your customer to easily share their feedback with you. 

Formplus tools help you get the most out of your pricing research efforts: from creating powerful forms to sharing them with your team and clients to interpreting the data so you can make informed decisions about what to do next.

Conclusion

Pricing sensitivity can be a big issue for any small business. You don’t want to be the company that charges too much or too little, and you want to make sure your customers are happy with your prices. 

So ensure that you’re giving your customers something they can’t get from anyone else, or making their life easier in some way.