Does your marketing plan fight price sensitivity?

Price sensitivity refers to the response of an individual to the amount of money asked or paid for a good or service and as a construct, it can be regarded as an attitude that varies across consumers.  Since it is a degree to which consumers use ‘price’ as a decision-maker criterion, consumers can have a generally high, medium or low price sensitivity, which has been seen as a stable attitude that changes gradually over time [1]. Price sensitivity is regarded as a consequence of different product-related, personal, social and market factors. Accordingly, it differs from place to place, group to group and from country to country. Researching on “behavioral pattern” [2] of consumers shows that geographical areas such as South Asia have a tendency to go for ‘compromising value over price’, whereas consumers in China and Northern America have a tendency to go for ‘value over price’ [3]. The behavioral pattern in China and Northern America no doubt might be a result of economic growth but it is without denial that price sensitivity is a habit and a myth that continues to rise all over the world. Thus, price sensitive consumers cannot be defined by income, age, ethnicity, gender, area or interests nor can it be limited to certain types of products and categories. In fact, as per the studies of Gunnar Clausen, “behavioral concepts such as price perception, price judgment and price interest came into being in the 1980’s” [4], and since then has gripped the global market and has never left.

Who are price sensitive consumers?

Given the fact that price sensitivity is an attitude, it can be applied generally under which comes India (South Asia), wherein “price sensitivity is a major aspect” [5] among the consumers. An Indian shopper is more demanding and price sensitive than an international shopper. There are more socio-economic segments and differences among the Indian shopper than in the international shopper segments, which explains her price sensitive consumers. This is compounded by the urban/ rural split among the Indian shopper. These multitudes of segments reflect in different shoppers’ behavior, eg. the frequency with which they buy, the seasonality of purchases, the pack sizes that they buy and the multiple retail formats in which they buy.

Price sensitivity in India

If we go more pedantic, Indian consumers may reflect a range of consumption behaviors from one social group to the other. For example, a consumer who is sure to be covered by a medical insurance policy for an illness is likely to be less price sensitive than another consumer who may not have a policy, or business class consumers in the airline industry may exhibit less price sensitivity if such expenses are covered by their respective companies [6], etc. But, Indian consumers remains the most sensitive towards price in the World, since the middle class are India’s most rapidly growing segment.  Keeping them in view, Indian consumers are nevertheless considered price sensitive, carefully planning their food purchases, and buying food in small quantities. This price sensitivity makes “package size an important element of demand” [7] in India. Many food items such as almonds, fruits, and pulses, are sold loose, so consumers can buy what they need for a few days’ consumption. Low-income customers can avoid paying a markup on such items as pulses, by cleaning and sorting them at home. Edible oils are also sold from bulk containers, requiring customers to bring their own bottles to be filled at the shop. However, in other strange conflicting and antithetical situation, Indian consumers whatever their economic conditions sometimes may show insensitivity towards certain product like jewelries [8]. Many consumers does not link quality with price in this case, rather they may link it with symbolism (religion/ritual).

Targeting price sensitive consumers

In such situation, marketing and creating products for these different consumer segments might generate one of the greatest challenges for marketers. To come into understanding the effect of price on consumers and a marketer’s sales and revenue, the latter might want to consider ‘price elasticity’ (a micro-economic term), wherein the marketer analyses himself as to “how much more will I sell, if I lower my price?”. In case, a marketer wants their market to boom, in spite of price sensitive consumers, one can adopt the Price Sensitive Meter, a technique proposed by Van Westendorp, to help both the consumers and the marketer.  Price Sensitive Meter is a technique to measure consumer price preferences. A favorite go to technique for market researchers worldwide, Price Sensitive Meter is attractive and appealing because of its simplistic approach. Price Sensitive Meter of Van Westendorp involves the following standard methodology and survey [9]:

  • At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)
  • At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)
  • At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side)
  • At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)

Other than Van Westendorp’s methodology, a marketer and a consumer specially in India, can understand price sensitivity at a greater level by participating in a research survey such as direct open-ended questioning (“How much would you pay for this”), or Monadic (“Would you be willing to buy at Rs.10”) or Laddering (“would you buy at Rs. 10”, then “would you buy at Rs.8” or “would you still buy at Rs. 12″). The simplest solution however, for Indian consumers and marketer towards price sensitivity and maintenance of balance GDP and living standard would be to introduce functional or symbolic value associated with brands that will  endure for a consistent period of time.

Determinants & consequences of price sensitivity in the market.
Determinants & consequences of price sensitivity in the market.

References

  1. Gunnar Clausen, Price Sensitivity for Electronic Entertainment: Determinants and Consequences, Universal Publishers, 2004, p. 49.
  2. Refer, Ibid., pp. 47-48.
  3. Helen H. Wang, “New Trends of Chinese Consumers”, Forbes Business Times, 17th December, 2012.
  4. Gunnar Clausen, Price Sensitivity for Electronic Entertainment: Determinants and Consequences, Universal Publishers, 2004, p. 47.
  5. S. Ramesh Kumar, Marketing and Branding: The Indian Scenario, Pearson Education, India, 2007, p. 206.
  6. George S. Serletis and Brian Allen (ed.), India: Effects of Tariffs and Nontariff Measures on U.S. Agricultural Exports, DIANE Publishing, PA, USA, 2012, p. 6.
  7. Ibid., p. 3.
  8. S. Ramesh Kumar, Marketing and Branding: The Indian Scenario, Pearson Education, India, 2007, pp. 206-7
  9. For further details on Van Westendorp PSM, please refer, P. H van Westendorp, “NSS Price Sensitivity Meter
  10. (PSM)—A New Approach to study Consumer-Perception of Prices,” Proceedings of the 29th ESOMAR Congress, Venice, 5-9 September 1976, pp. 139-167, and Thomas Nagle, John E. Hogan and Joseph Zale, The Strategy and Tactics of Pricing: Pearson New International Edition, Pearson Education, Limited, 2014.
  11. Westendorp, P. H Van “NSS Price Sensitivity Meter (PSM) – A New Approach to study Consumer – Perception of Prices,” Proceedings of the 29th ESOMAR Congress, Venice, 5-9 September 1976.
  12. Nagle, Thomas, John E. Hogan and Joseph Zale, The Strategy and Tactics of Pricing: Pearson New International Edition, Pearson Education, Limited, 2014.
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