However, when times are tough, price sensitivity may increase as people try to get the best possible deal on these essentials.
You can expect to see demand for these kinds of goods holding steady no matter the economic climate. Examples include things like bread, milk, gasoline, toothpaste – the items people need to live life and do their jobs. Type of product or serviceĬertain classes of goods and services are by nature more sensitive than others. Price sensitivity drivers vary, but here are some of the most common factors involved. Hitting that precise point and staying there is likely impossible, but careful price sensitivity analysis can help make sure you get as close as you can to your goal. When setting prices, the ideal is to achieve the perfect balance (equilibrium) where your price is as high as you can make it without adversely affecting demand from your customers. There are multiple, ever-changing factors that drive price sensitivity, meaning it’s wise to track it on an ongoing basis so that you have the necessary information to hand whenever you need it. Keeping track of price sensitivity is vital because it allows you to understand the impact an increase or decrease in price will have on your profits, and how to time any pricing changes you have planned to best take advantage of the current mood among your customers.
When there is low elasticity, when the price goes up, demand goes down. Essentially, when there is high elasticity, you can increase the price without seeing much of a corresponding decrease in demand. The relationship between elasticity and price sensitivity is important to understand. Price elasticity of demand = % change in quantity demanded / % change in price
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