Price sensitivity, in German Price sensitivity, describes the extent to which customers react to price changes for a product or service.
High price sensitivity means that even small price increases can influence purchasing decisions. Customers may then decide not to buy, opt for a cheaper alternative or switch to competitors.
Where price sensitivity is low, other factors play a greater role, for example:
- Product quality
- Trust in the brand
- Customer Service
- User-friendliness
- Time saved
- lack of alternatives
- The urgency of the problem
Price sensitivity can vary depending on the target group, market and product. Business customers, for example, often react differently to prices than private customers. Even within a single target group, customers’ willingness to pay and expectations can vary considerably.
For start-ups, understanding price sensitivity is important in order to:
- to set a suitable price
- to develop various pricing models
- Making good use of discounts
- To target specific audiences more effectively
- to increase the perceived value of the offer
- to strengthen our positioning against competitors
To analyse price sensitivity, start-ups can, amongst other things, conduct interviews with customers, carry out surveys, run pricing experiments or conduct A/B tests. The key factor here is not only what price customers are willing to pay, but also the value they associate with the offering.
High price sensitivity does not necessarily mean that the price is too high. It may be that the added value of the product is not yet being communicated clearly enough, or that the offer is aimed at the wrong target group.
innoWerft helps founders to better understand their target audiences, review their pricing assumptions and refine their business and pricing models based on feedback from potential customers.