Your customer’s price sensitivity is the degree to which price determines his or her inclination to buy your product or service. Typically, price sensitivity is measured by price elasticity of demand, i.e. how does a % change in price affect the quantity demanded by your customers.
Reference Price Effect – buyer’s price sensitivity for a given product increases the higher the product’s price relative to perceived alternatives. Perceived alternatives can vary by buyer segment, by occasion, and other factors. How important is the expenditure (portion of income or monetary terms) for the buyer?
These are just a few of the factors that influence price sensitivity and price elasticity of demand. There are several others, such as how the price compares to the size of the customer’s budget, however, we have selected the ones above as you can do something about those yourself.
Several studies have found that consumers’ fairness perception has substantial influence on their price sensitivity. Unfairness typically arises from various price discrimination practices, or discrimination in general, which is not necessarily a bad thing as such practices make a key component in profit maximization.