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Price Sensitivity vs Price Elasticity in Strategic Decision-Making

Price sensitivity and price elasticity are different when it comes to pricing optimisation. In this blog, let's uncover their differences so you can implement them at the right time.

The right price at any time can boost profit and revenue dramatically. So, it’s crucial to adjust prices optimally and frequently depending on your market and competitive situation. With changing market conditions, demand changes and so does customers' motivation to purchase. In pricing management, businesses must include price elasticity and price sensitivity strategically to get the desired profit margin.

However, there is a huge difference between price sensitivity vs price elasticity. While Price Elasticity determines the change in the product demand with the shift in price, price sensitivity is much more complex. The former relies more on price solely, while the latter has multiple other factors that influence the optimal price.

has been a revered tool for predicting optimal prices, but it's not always the most feasible option due to its heavy data requirements. This is where Price Sensitivity shines, offering a more accessible and equally insightful approach to understanding pricing strategies. Let's delve into this fascinating world and explore how Sensitivity can be a game-changer in the realm of pricing.

Also Read: To understand closely how Price Sensitivity works and how you can implement it, give our Price Sensitivity Guide a read.

PRICE ELASTICITY LIMITATIONS

Understanding the Limitations of Price Elasticity

Price Elasticity, undoubtedly powerful in predicting optimal prices, faces constraints in its application. Its reliability hinges on the availability of a substantial volume of specific data. Many organizations, however, find themselves with varying data types, insufficient for the stringent requirements of Price Elasticity. Approximately only 20% of products can effectively utilize elasticity due to prerequisites like stable economic conditions, consistent competitor behaviour, and substantial data on price changes and sales volumes.

The Brilliance of the Price Sensitivity Algorithm

Enter Price Sensitivity, is a versatile and robust algorithm designed to navigate these challenges and offer actionable insights into optimal pricing. Unlike Price Elasticity, Sensitivity does not require an overwhelming volume of data and is adaptable to a broader range of data types.

Is Sensitivity Score Replacing Price Elasticity?

No, the Sensitivity Score doesn't replace Price Elasticity; rather, it complements it. Sensitivity is particularly useful when Price Elasticity cannot be applied due to data constraints. It provides an alternative method to gauge the impact of various price drivers on product pricing.

Sensitivity's Data Approach: Comprehensive and Versatile

The Sensitivity algorithm gathers data at the product level, encompassing factors like region, specific customer groups, and product segments. It can operate across various dimensions, provided there is sufficient data quality. SYMSON’s data quality report engine assigns a green, orange, or red score to the data, indicating the reliability of the outcome, and ensuring that the pricing suggestions are data-backed and trustworthy.

Applications of the Sensitivity Algorithm

Optimal Pricing: The algorithm offers predictions and suggestions to identify the best prices for products and quotes, even for complex scenarios like tenders.

Business Improvement: Understanding how different price drivers influence pricing can lead to improved business strategies and higher margins without negatively impacting customer satisfaction or NPS scores.

PRICE SENSITIVITY VS PRICE ELASTICITY

Sensitivity vs Elasticity: Complementary Forces in Pricing

While Price Elasticity remains a valuable tool for specific scenarios, Sensitivity opens the door to a wider range of applications, particularly when data availability is limited. By leveraging the Price Sensitivity algorithm, businesses can gain a more nuanced understanding of pricing dynamics, leading to better-informed decisions that align with market trends and customer preferences.

In conclusion, the choice between Sensitivity and Elasticity should be guided by the specific needs and data availability of an organization. Embracing the strengths of both models can empower businesses to navigate the complex pricing landscape effectively, ultimately leading to enhanced profitability and market positioning.

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!

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