One may choose to buy a pair of sneakers in the central shopping center. For another person, the same act of buying implies going to the local store, where the price is different. It is all about price sensitivity and its effect on buying behavior. Regarding the retail field, such a phenomenon becomes a crucial factor for selling the goods and can either boost or decrease the performance of the retailer.
Price sensitivity matters indeed
Price sensitivity is a complicated concept (discussed in details in this article), involving consideration of the extent the products’ cost impacts the buying intentions of the customer. In general, a decision or willingness to buy a product derives from multiple factors. In particular, they refer to the recognition of a need, information search, deliberation, price, purchase, post-purchase. These features are essential for the buying behavior of the client.
Notably, the need provides a critical stimulus, research provides options, while deliberation brings evaluation. The latter stage is essential, as the consumer analyzes the features alongside the price. In this regard, the cost becomes vital as, under the elasticity of demand, the change in the demand of the product may increase the price. It poses a point of interest for retailers.
For retailers, the significance of price sensitivity is hard to underestimate. Namely, shifts in the price can be crucial for the customer who is buying a product. It derives from the transparency of the costs and opportunities for delivery in the market. Following, if the buyer purchases the product, the retailer should provide the appropriate price tag, which will answer to the demand and quantity on the market.
The response to the price elasticity enables the retailer to see the dangers and opportunities for selling. The identification of such areas can provide the boost of purchases by the customers. Nevertheless, price sensitivity can be a useful tool for the sales boost if measured appropriately.
Steps of measuring price sensitivity
The measurement of price sensitivity may refer to different methods like Price laddering or Van Westendorp’s method. Each of them has a different approach. The first strategy contemplates asking the customer on the intentions to buy a product, and getting ranged answers, while the second provides the survey with four questions on the price, becoming the basis for the statistical model and analysis.
They represent the most applicable and straightforward methods. Nevertheless, there are specific steps which are vital for any measurement of price sensitivity:
Collect research data
Another method is more developed but has the same data collection principle. The respondent should answer on the highest degree of the expensiveness of the product, its cheapness, conditions for consideration of buying, and the actual bargain price. The nature of the questions is different here. Nevertheless, the first and the most vital step regarding data remains.
Track customer behavior
The track of customer behavior is concerned with applying the algorithm for the analysis of data. Under this, the statistical part plays a significant role. Under the Price Ladder method, the tracking comes to the definition of the price and matching a certain point. If the responses are lower than the defined measure, the repeat of the data collection is needed.
Van Westendorp’s approach is more complicated, requiring statistical analysis. As there are different data on four questions, one can draw lines based on the answers. They provide the points of intersection, where the optimal price point is desired by the researcher. Following, the comparison and analysis of the data allow finding the patterns within the customer behavior. In particular cases, they refer to the points of the right price tag for the customers.
Generally, customer behavior is visible through the patterns described below:
Work with feedback
After the analysis of the behavior of customers and their intentions, the feedback is essential. The evaluation of the appropriate price gives a chance to establish an estimate based on the economic rules of demand and the wants of the buyer. In this regard, a retailer should understand that the price is changing all the time.
Following, this step contemplates the definition of the ranges of the optimal price and update of the survey for subsequent analysis and data research. Besides, any feedback considers the report with an indication of data, key points, and the definition of the appropriate price for selling.
Measuring price sensitivity expertly
The consideration of steps shows that there are various tasks and requires a thorough analysis of data. It raises the question of measurement efficiency. The appropriate evaluation of price sensitivity may refer to the technological solution. The development of the technologies allows using AI-driven tools and machine learning for quick and rapid analysis.
There are different ways to improve the various steps of price sensitivity measurement:
- Chatbot and data collection. The retailer may use chatbots within the messengers or websites. The bot is likely to ask the questions and stock the responses. It may be convenient for both buyers and retailers, as the appropriately constructed chat robot can give detailed insights and save customer’s time. The chatbot is an efficient and interactive way to collect data.
- Programs analyzing data and making a prediction. In particular, there are companies like Wise Athena, which provide econometric science helping to describe the behavior of goods and cross-elasticity. The basis of the specific agent is the machine learning approach, the update of which offers more accuracy.
- AI software and Van Westendorp model. Getsitecontrol survey form builder appears to incorporate all the steps of the measuring process into the online form. Due to the algorithms, it systematizes the data and gives the optimal range of pricing for the product.
The measurement of price sensitivity provides the data on the buyers’ behavior and can give an efficient price to the product increasing the sales of the retailer. The traditional evaluation involves data collection, its analysis and feedback production.
Nonetheless, the survey is central to the research, while the statistical method helps to determine the patterns. In this regard, the rapid development of industry requires efficient solutions.
The AI-driven approach and machine learning provide the tools in the form of chatbots, software, and online tools. They can facilitate the collection of information in an interactive way and provide accurate analysis or prediction. Following, the useful measurement of price sensitivity is the key to granting a boost in retail.