Understanding price sensitivity can help a company stay competitive by allowing it to set optimal prices for its products or services. This is because price sensitivity, or the price elasticity of demand, provides insight into the value customers place on a product and their willingness to purchase it at various price points. If a product has high price sensitivity, it means customers consider it overpriced and the company may need to lower the price to increase sales. Conversely, if a product has low price sensitivity, the company can likely increase the price without negatively affecting sales. Additionally, understanding price sensitivity can help a company more accurately forecast sales volume and influence customer behavior through specials, discounts, and other marketing techniques.
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