How Price Sensitivity Can Make or Break Your Profits
Many firms fail to draw on quantifiable data to assess the relative price sensitivity of different customer segments. Historically, companies have relied on two common pricing strategies – “cost-plus” pricing, which requires firms to make constant adjustments as their costs rise; and “competitive pricing,” which involves setting prices based on the price set by rivals. Both pricing approaches share common failings, as they do not incorporate critical information on what customers are willing to pay, and rely heavily on management’s subjective judgment.
By understanding the trade-off between price and volume as well as the cost-to-serve, companies can make pricing adjustments to generate more volume, more profit or both. Analyzing quantifiable data can refine a firm’s understanding of buyers’ price sensitivity and how it varies by product, channel, geography, and customer segment over time. Rob Friedman, director, Deloitte & Touche LLP explores this topic in a recently published article in The Pricing Advisor, a Professional Pricing Society Publication.
To learn more about how a company can estimate customer elasticity and optimize its prices, download the attachment below.