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The following are the factors that are known to have effect on price sensitivity.
The degree to which the cost of goods and services influences consumers' propensity to purchase them is known as price sensitivity.
Consider the scenario where you sell cupcakes. Customers are showing strong price sensitivity if you raise the price of a cupcake by $0.10 and they start going to the bakery down the street instead of yours right away.
Sensitivity to price varies widely. It is affected by the types of products and services you offer, the customers you have, and market-wide variables including social and economic trends.
Price sensitivity in economics is expressed in terms of demand elasticity, which is calculated using the following equation:
Price elasticity of demand is calculated as follows: % change in quantity demanded / % change in price.
It's crucial to comprehend how elasticity and price sensitivity are related. Basically, a high degree of elasticity allows for price increases without much of a commensurate drop in demand. When there is little price elasticity, demand decreases as prices rise.
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