Price Sensitivity measures consumer response to changes in a product's price. Businesses use this understanding to optimise pricing strategies, ensuring stability in demand even when prices fluctuate.

To calculate the price sensitivity of a particular product we follow a simple process. First, we identify price drivers - market and consumer factors that may influence prices. Then, we build a model that uses the price drivers info as well as multiple external sources to generate a sensitivity score which then can be interpreted.

In the context of price sensitivity, 'sensitive' refers to consumers' high responsiveness to changes in price; a small change in price leads to a significant change in demand. 'Insensitive' means consumers' demand is relatively stable despite changes in price; they are less likely to alter their buying behavior because of price fluctuations.

Understanding price sensitivity is crucial for businesses to set prices optimally. It informs how price changes affect sales volume, revenue, and profitability. By knowing how sensitive customers are to price fluctuations, businesses can tailor pricing strategies to maximize profits, remain competitive, and meet market demand effectively.

Competition affects price sensitivity by offering consumers alternatives. In a market with many competitors, consumers are more likely to be sensitive to price changes, as they can easily switch to a competitor if prices rise. Conversely, in markets with few competitors, price sensitivity may be lower as consumers have fewer alternatives and may be less responsive to price changes.

Yes, price sensitivity can change over time due to factors like shifts in consumer preferences, economic conditions, brand loyalty development, introduction of new products, or changes in the competitive landscape. For instance, during an economic downturn, consumers may become more price-sensitive, seeking better value for money.