Understanding Price Sensitivity in Marketing

Price Sensitivity is the awareness of the consumer to what they perceive to be the window of cost within which they will buy a particular product or service. It is imperative that the marketing professional be able to assess price sensitivity in the target market accurately as missing the "window", even by a small margin can have enormous consequences for the company's bottom line. Priceline companies have use their format to mine the price expectations and tolerances of their customers so the offerings they make can be as near the customer's expectations of discount deals as possible and still maintain viability.

Each customer will have a certain price acceptability window and different customers have different limits in their perceptions of what price is within their range. R.S. Consulting notes that establishing bottom line customer perceptions of price and their responses to price indicates whether a market is very price sensitive or not. For the marketing professional the trick is to figure out how customers determine what "price" means. R.S. Consulting uses a modified version of a method known as Price Sensitivity Measurement. This method asks survey respondents to define a possible range of prices noted in a scale called a price ladder. In order for the survey to be valid and not become a self fulfilling prophecy, the prices represented must be positioned on the upper or lower ends of the scale and not in the middle. Survey respondents are ask to pick two different price points on the price scale: The point where the product is beginning to appear "expensive" or a poor value for the money, and the point where they perceive the product to be a "good buy". (Information retrieved 12/2/04 from http://www.rsconsulting.com/white-papers/price-sensitivity-measurement.asp ).