Take a look at all our Webinars and Events!

Watch Events Watch Video
CASE STUDY - 6 MIN READ

5 Price Sensitivity Examples and Identifying New Drivers to Calculate Sensitivity Level

Take a look at 5 price sensitivity examples of products and learn how to identify new drivers and calculate sensitivity level. Prepare to set strategies and find optimal prices.

BLOGS & ARTICLES

5 Price Sensitivity Examples and Identifying New Drivers to Calculate Sensitivity Level

Take a look at 5 price sensitivity examples of products and learn how to identify new drivers and calculate sensitivity level. Prepare to set strategies and find optimal prices.

Price sensitivity examples reveal the intriguing correlation between consumer wallets and the perceived value of products. In a market where choices abound, understanding which products are highly responsive to price changes can be the key to strategic pricing decisions and staying ahead of the competition.

Also Read: The Price Elasticity Guide to get an in-depth understanding of how products demand varies with price changes.

While there are several other price-sensitive items, in this blog, we will discuss the top 5 products or product categories whose demands are highly price sensitive. Later, we will talk about the pricing strategies you can use to capitalise on those products. Let's dive into the world of price sensitivity and explore different types of products that showcase this phenomenon.

Price Sensitive Products: Unveiling the Dynamics

Price-sensitive products are those where even a minor fluctuation in price can significantly impact consumer demand. In these cases, consumers closely scrutinize the price before making purchasing decisions. From a consumer’s point of view, this sensitivity is often influenced by factors like product necessity, perceived value, and available alternatives.

However, in today’s modern AI pricing, identifying new drivers, creating a regression model and finally being able to act upon the price sensitivity scores is a crucial step to stay ahead. We have discussed these drivers further down in this blog.

Now, let’s look at some intriguing price sensitivity examples across various industries.

1. Consumer Electronics:

Smartphones, laptops, and other gadgets fall squarely into the category of price-sensitive products. In the ever-evolving world of technology, consumers are acutely aware of the features and specifications they're paying for. Price drops can lead to surges in demand, while price hikes can deter potential buyers.

2. Air Travel:

The airline industry is a classic example of price sensitivity. With options to compare fares easily, travellers are quick to opt for more affordable options, even if it means altering travel dates or accepting layovers. Airlines need to strike a delicate balance between profitability and appealing to price-conscious passengers.

3. Fast-Moving Consumer Goods (FMCG):

Products like packaged snacks, toiletries, and cleaning supplies are highly price sensitive. While consumers might have brand preferences, pricing plays a pivotal role in their purchasing decisions. Promotions, discounts, and price reductions can lead to noticeable shifts in sales volumes.

4. Clothing and Fashion:

Fashion items, especially those catering to budget-conscious consumers, exhibit significant price sensitivity. Rapidly changing trends and a plethora of choices make consumers more willing to explore lower-priced alternatives, particularly when quality is perceived to be similar.

5. Grocery Items:

Daily essentials like groceries and food items are inherently price sensitive. Consumers often compare prices between different brands and stores, making decisions based on perceived value and affordability.

SYMSON’s Discovery of New Drivers Affecting Price Sensitivity

Traditional price sensitivity models like the Van Westendorp pricing model or the Gabor-Granger model are inaccurate, biased and have multiple flaws. As businesses today use AI to carefully manage repetitive tasks in bulk, pricing across several e-commerce platforms/websites or even physical stores also require such support. However, as the market scenarios shift frequently, pricing managers and CFOs must continue identifying new drivers that influence customer purchase behaviour.

We at SYMSON discovered specific critical drivers that influence price sensitivity. Here are a few parameters that we found but are not limited to:

  • Brand Value:

Consumers often relate higher prices with better quality, leading to a decreased price sensitivity for established brands. However, it is quite the opposite for lesser-known brands.

  • Product Lifecycle:

A product in its introductory phase may mostly be relatively less price sensitive. This is because customers could be willing to pay a premium for a novel or an innovative product. When the product gains popularity in the growth stage, its sales increase rapidly. The price sensitivity tends to decrease as the product becomes more established. Customers tend to be less sensitive to price changes due to increased demand and perceived value.

As the product reaches its peak sales and market saturation, the price sensitivity becomes typically high as the market becomes more competitive with growing alternatives to choose from.

Finally, the product experiences a decline in demand as newer and better alternatives emerge. Price sensitivity can vary during this stage, but generally, customers become more price-sensitive as they may seek lower-priced alternatives or switch to newer products.

Also Read: How to Deal with Price Sensitive Customers.

  • Price Level:

The price level refers to whether a price is grouped as cheap or expensive based on customer input and sales data. A higher price may raise its sensitivity. Besides, assessing the product's price sensitivity can provide insights into the price level's impact on purchasing decisions.

  • Price Change Frequency Driver:

Price Change Frequency determines the number of times a client changes the product’s price in the selected time period. High frequency suggests the price strategy follows the market dynamics closely and thus can be correlated with higher sensitivity.

  • Competitive Intensity:

In a market with countless alternatives, buyers are likelier to be more price sensitive and therefore seek lower-priced options. Conducting competitor analyses to revisit prices or value propositions can help businesses gauge competitive intensity and its effect on price sensitivity.

Assessing new parameters for price sensitivity involves human expertise and judgement. You can read our in-depth research article on Optimising Profits through Price Sensitivity: The Synergy of Machine Learning and Human Expertise in Pricing Optimisation. This, combined with the computational and automatisation power of Machine Learning, can help build a hyperlearning organisation.

Pricing Strategies to Capitalise on Price-Sensitive Products

Identifying price-sensitive products can help companies set different pricing strategies to increase their potential to boost sales volume. Hence, understanding the price sensitivity examples is not only insightful but also actionable for businesses. Let’s look at a few strategies to employ for such products:

  • Dynamic Pricing:

For price-sensitive products, dynamic pricing algorithms can adjust prices in real time based on market conditions, competition, and demand fluctuations.

  • Bundling and Cross-Selling:

Combining price-sensitive products with higher-margin items in bundles can enhance perceived value and encourage higher spending.

  • Limited-Time Offers:

Creating a sense of urgency through time-limited offers and discounts can prompt quick decisions from price-conscious consumers.

  • Premium Versions:

Offering premium versions of price-sensitive products with added features can attract consumers who value quality over price.

Price sensitivity examples highlight the delicate balance businesses must strike between pricing strategies and consumer behaviour. Recognizing which products are highly price sensitive empowers businesses to make informed decisions that align with market dynamics and consumer preferences. By adapting strategies that resonate with price-sensitive consumers, companies can not only drive sales but also build lasting relationships based on perceived value and affordability.

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

HAVE A QUESTION?

Frequently Asked
Questions

What are 3 examples of price-sensitive products?

You can calculate price sensitivity by dividing the percentage of change in quantity by the percentage change in price. For example, if you sell pet food and raise the price by 50%, the sales drop by 12%. Using this formula, we can calculate the price sensitivity of the product. Here are 3 examples of price-sensitive products:

  • Some consumer electronics
  • Airline tickets
  • Clothing/Fashion products

Is Amazon a price-sensitive marketplace?

Yes, Amazon keeps changing its product prices every 10 minutes, as highlighted by McKinsey & Company and many other research articles. Price-sensitive customers check prices across multiple platforms and even sort out alternatives before purchasing. Amazon settles the debate by finding optimal prices depending on the time of the day, month, and so on using dynamic pricing abilities.

What is another name for price sensitivity?

Otherwise known as Price Elasticity of Demand, price sensitivity assessment includes multiple drivers to identify the nature of products and find the right prices.

What factors influence price sensitivity?

There are several factors impacting price sensitivity. However, SYMSON discovered new drivers, which are and not limited to:

  • Brand value
  • Product Lifecycle
  • Price Level (as compared to competitors)
  • Purchase Price changes (sudden increases or decreases in price)
  • Competitive Intensity

What is the difference between price sensitivity and price elasticity?

In price elasticity, the main relation is between price and the quantity demanded. On the other hand, to calculate price sensitivity, one has to consider several specific drivers other than price and systematically compute the scores. Hence, their outcomes are different. This difference in their approach makes the accuracy of prediction much higher with price sensitivity than elasticity.

Related Blogs

Other case studies you might be interested in

No items found.

Ready to kickstart your pricing journey?

Talk to a SYMSON expert now