L10 Flashcards
Price sensitivity
What is price sensitivity?
Def I: Price sensitivity is the degree to which the price of a product affects consumers’ purchasing behaviors.
Def II:The market’s responsiveness to a price change.
When a price change causes very little sales response, the market is “insensitive” – when a price change causes a very large response, the market is “sensitive.”
The price sensitivity of a product varies with the level of importance consumers place on price relative to other purchasing criteria. For example, customers seeking top-quality goods typically are less price sensitive than bargain hunters.
Which factors influence price sensitivity (4)?
Economic
Competitive
Cognitive
Emotional
How economic factor affects price sensitivity?
Price Elasticity - If I increase my price by 1%, by how much the demand would decrease/increase.
E=% d Unit sales / % d Price
+ Is independent of how sales and price changes are measured and can be compared over various situations
How competitive factor affects price sensitivity?
Game-theory: price competition
How to do it?
> Go to competitors store monthly and check their prices.
> If competitors employee applies for a job, use him and ask questions during the interview (unethical).
How cognitive factor affects price sensitivity?
Price knowledge, meaning, awareness
> Economists have often assumed that customers have detailed and accurate awareness of prices.
A customer cannot sensibly respond to a price without some price-level knowledge.
- Explicit memory=Price recall
- Implicit memory=No conscious recollection
Price-meaning knowledge: Knowledge of what the price may communicate about the product
Also
>price tags with .99
>sharp pricing 13,456.65 signals it is fair pricing and company cuts as much as they can to provide value for price
> 25,000 for ring signals it is high quality premium
> 5£ simple price,
external/internal reference price
Framing with offering 2 other options for comparison/reference price
How emotional factor affects price sensitivity?
Prospect-theory Value Function
Fairness
Discounts make people happy
Missed discount makes people sad
Price increase or price discrimination makes people angry
How to manage price level knowledge?
Manage price format:
> Increase price level awareness: make visible ads.
> Decrease price level awareness: make it complex to understand the price (cars with many accessories)
How is category elasticity different from brand elasticity?
The category price elasticity is the percent change in sales for an entire product category divided by the percent change in the average price for an item in that product category.
The brand price elasticity is the percent change in the sales of that brand divided by the percent change in its price.
Which 4 economic factors affect price change responses?
1) Amount of money involved
2) Price change relative to price of product
3) Customers’ switching cost
4) Customers’ search cost
