Price Sensitivity

Elasticity = % Change in Quantity

Demanded
% Change in any Demand
Determinant

P2 P2
Price Price
P1 P1

Q2 Q1 Q2 Q1
Quantity Demanded Per Period Quantity Demanded per Period
(a) Inelastic Demand (b) Elastic Demand
 Factors Affecting Price Sensitivity

• Perceived Substitutes Effect

• Unique Value Effect
• Importance of Purchase Effect
(Medicines)
• Difficult Comparison Effect
• Price Quality Effect (Whisky v/s
petrol)
• Expenditure Effect
• Fairness and transparency effect
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 Factors Influencing Pricing
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• Perishable Products
• Fixed Costs
• Seasonal Demand
• Products sold by Volume
• Supply Chain
Approaches to pricing
a Retail Product
• Cost-oriented price
• Demand Oriented Price
 Cost-oriented Price
• Related to cost retailer incurs when purchasing a
product or service for sale to they customers
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 Cost-oriented pricing
techniques
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• Cost-plus pricing •R a te o f R e tu rn p ricin g
• Select the target market •C o n ce n tra te s o n
• Determine the cost of goods p ro fits
g e n e ra te d in re la tio n to
• Determine ceiling price
ca p ita l
• Apply mark-up in ve ste d
•ke e p s b u sin e ss g o in g
Demand-oriented pricing
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• Considers factors of demand than the cost
occurred
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• Prices are usually raised to take advantage
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 Demand-Oriented Pricing
techniques
• Discrimination Price
• Variable or flexible price
• used for selling a particular product or service for
different prices
• Serves the segment which do not purchase
otherwise
• Also, used to increase the price
• e.g: Happy Hours, special one off discount rate,
‘Fads’
• Backward Price
• focuses on what the consumer is willing to pay
• Acceptable margin is set… costs are monitored…
adjustments are made
• ‘Price Lining’
• Sales volumes can be increased because of larger
assortment
• Can either trade up or down
 Demand-oriented pricing
techniques
• Skimming price
• When shortage of supply with added value, therefore
unchanged demand (Less elasticity)
• e.g: top fashion houses
•

• Leader price
– Very compertitive
– ‘Loss leaders’
– Offer heavy discounts
– Increase in store visits, perception and purchase of
good volume
– e.g: Supermarkets
 Demand-oriented pricing
techniques
• Market penetration pricing
– Entry pricing technique
– Competitive pricing adopted for fast establishment of
a brand or service
• Psychological pricing
– Odd pricing
– Perception of less bandwidth pricing
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 Demand-oriented pricing
techniques
• Everyday low pricing
• Continuity of discounted pricing
• Perception of fairness
• Reduced advertising
• Improved customer service management
• Reduced stock outs and improved inventory
• Increase profit margins
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