Cost/Price Sensitivity of Customers

Price sensitivity can be defined as the consciousness of the customers to cost windows or range within which they make dealings.

All the customers are always cost sensitive and concentrate basically to buy products on cheap rates. However, cost sensitivity of a customer substantially depends on condition of the market.

For example if a product becomes extraordinarily famous and demanding in market and every company is tending towards capturing this product then it becomes necessary to focus on technological aspects rather than focusing on the cost. If they do so then the cost sensitivity of these customers is least.

Similarly if a product becomes common in market due to emerging competitors coming up with similar but more prominent products, then in this competition the value of the product decreases and the companies become rarely bothered for them.

In this scenario the customers have the right to become highly cost sensitive as they know that they can negotiate with the suppliers to a greater extent. This is when the customers are called as high cost sensitive customers.

It is important for the suppliers to understand how cost sensitive the customers are; so that they should focus on some strategies always to keep their customers falling under least price sensitive stage.

For example, reducing one dollar on a towel’s price could put that towel on sale and everybody rushes to buy it, but reducing one dollar on a car will not make any difference and will not attract customers by any means. Hence the primary challenge for all the organizations should be making certain that the change in price is perceptible for all the customers.

Price sensitivity strategy for suppliers also depends on customer usage of products. Their can be two categories of customers as per the buying aspect; heavy buying users and light buying users.

Take an example of an organization which consists of 30% heavy buyers and 70% light buyers. Now if the organization cuts off the price of the product to some extent only for heavy users, then a substantial growth in percentage from 30% to 40% is probably possible. And obviously 40% heavy buyers and 60% light buyers will be more productive for the organization rather then 30% heavy buyers and 70% light buyers.

Hence, knowing about the customer’s price sensitivity always helps suppliers to entertain and satisfy them. If the customer is highly competitive and perceives short term projects, then it is not worth for suppliers to convince them for high end or expensive products.

The customer will anyway supercharge to reduce the cost or cut the related frills as it may not be affordable or is out of budget for them to purchase. So it is important for suppliers to sacrifice on cost or else he may leave the customer unsatisfied, in worst case he may loose that customer also.

Making fruitful strategies and positive analyzing cost sensitivity is one of the most important challenges that an organization could face. On the other hand it is desirable to deal efficiently with it. The best practice is to pre-evaluate the customer needs and make a fair offer to them according to their requirement and budget.

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Customer Relationship Management