Consumers’ knowledge of
prices of products is usually sketchy particularly for low-cost items. And
their behaviour is often inconsistent with their claims. For instance,
according to claims, they would be more price elastic towards an impending
price increase than reflected in their behaviour at the time the price increase
takes place.
Understandably consumers are much more sensitive
to a discounted price promotion (i.e., a temporary price reduction) than a
regular price reduction. Indeed, the discount elasticity of
demand (i.e., promotional price elasticity) is a lot greater than the price
elasticity of demand — and marketers should be careful not to confuse one with
the other.
The availability of similar, substitutable
products increases consumers’ sensitivity to price. On the other hand, a well
differentiated, unique product is less elastic to price changes.
Products that are deemed necessary tend to be less
sensitive whereas inessential products
may be more elastic. Also, low-cost products that take up a smaller proportion
of the consumers’ budget are less elastic compared to those that take up a
greater share of the budget.
Consumers’ price elasticity is also observed to
diminish when shopping with a friend, or when being persuaded by a salesman
perceived as an expert.
The ease of access to information on price is also leading to an increase in
consumers’ sensitivity to price. With the ability to make web-based price comparisons from
the comfort of their homes or while on the go, consumers are becoming more attuned to pricing,
and more sensitive to changes in price.
It is believed that price points may also affect
the price elasticity of demand. For instance, a reduction in price from $10.00
to $9.99 is noted to have greater impact than a reduction from $9.99 to $9.98.
This incidentally has led to the practice that is referred to as “odd pricing”,
where retailers set prices ending with “.9”.
Studies have also shown that consumers’ sensitivity to an increase in price is
different from their sensitivity to a reduction in price.
These aforementioned details demonstrate a diversity of factors affecting
consumers’ sensitivity to price, that further complicate the task of setting price.
Given the uncertainties surrounding pricing decisions, marketers should rely on
research studies that reveal insight into how price impacts the demand for their brands as well
as their competitors’ brands.
