Consumer Price Sensitivity

Understanding that different people have differing degrees of sensitive to price depending on the situation and the product helps price more effectively.

 

The term "price sensitivity" is often used to reference Price Elasticity of Demand, which looks at how price affects demand for a product. In this context we're looking at group behavior – how a group of people respond to changes in price.

Consumer price sensitivity looks at how individual consumers look at prices, and how much relative importance they place on them. A price sensitive customer is one that is very focussed on price and relative value.

 

“When price-sensitive consumers spend, they want to feel like they are buying merchandise that is fairly priced, if not a significant bargain.”

Plunkett Research

 

When it comes to groceries, a price sensitive customer is likely to shop at a discount grocer, Walmart, Costco, etc., focus on less expensive store and generic brands, compare prices, clip coupons. Price will be the biggest factor in their decision.

A customer less sensitive to price would lean towards Whole Foods or the organic section of their local grocery store, prefer name-brand products over generic, and be less likely to clip coupons. They are less focused on price and more focussed on other factors and attributes – the perceived benefit of organic food, the comfort of a known brand, etc.

Most people will skew one way or another much of the time – some people are generally more interested in prices (price sensitive) than others. But it is wrong to think that customers will always display the same degree of sensitivity (or insensitivity) to price. The situation and the product(s) in question must also be considered.

For example – some people will consult apps and drive several blocks (if not more) out of their way (and sometimes even wait in line) to save a few cents a gallon on gasoline. Such behavior indicates a high degree of price sensitivity, at least when it comes to gasoline, and all that effort is only likely to save them thirty or forty cents. These consumers are more focused on price and relative savings, and less focused on time and convenience.

That very same person may gladly splurge on a full synthetic when changing their motor oil. Given the many less expensive and perfectly acceptable alternatives, this shows them to be relatively insensitive to price in just a slightly different situation involving what goes into their vehicles. This buyer believes there is a benefit to synthetic oil that makes them less sensitive to the higher price, but places a lower value on the time and energy it takes to save a little money on gasoline.

Another buyer might absolutely grind out their salesperson on the purchase of a new car – negotiating for months trying to save a little money on the purchase price. That same buyer might then consistently fill that new vehicle with more expensive mid-grade or premium, ignoring the advice of the dealer, manual and other research that indicates there is absolutely no benefit. Again this buyer is price sensitive in one situation but not in another, even though both situations involve their vehicle.

 

Implications For The Flower Business

How is this relevant to the flower business? Some customers will always skew towards being more sensitive to price, and will be attracted to sales, discounts, charm pricing and other such tactics. Other buyers will always tend towards being less sensitive to price, and more focussed on service, convenience, descriptions, and emotion.

And, again, the same buyer will be more or less sensitive to price based on the situation. The business owner that is buying ten arrangements for his best clients at Christmas is likely to be focussed on price. When he is buying flowers for a new girlfriend or his wife of 25 years, or if he is trying to get out of trouble, he will likely be less sensitive to price.

Consumer price sensitivity will even vary towards different parts of the typical flower order. A customer might absolutely love flowers and be relatively insensitive to their price, but very sensitive to delivery fees.

Sensitivity to delivery fees has been largely overlooked of late in the flower business. Over the past few decades, floral delivery has gone from being a free service to one that was heavily subsidized, to being a break even proposition. Now many believe that delivery charges should be high enough to make delivery an important source of profit.

It's true that only real local florists can offer same day delivery, but there is one other fact that is often overlooked: a lot of people hate paying for delivery:

 

Econsultancy found that 74% shoppers abandoned baskets due to high shipping costs.

David Moth @ Econsultancy

 

This is one of the reasons Amazon Prime is so popular. People hate paying delivery charges, and Amazon Prime lets them avoid that.

Some florists address this be offering bundles – packages that include delivery. Delivery isn't free, it is simply bundled into the higher package price, but by obfuscating it the florist is less likely to alienate the customer that is particularly sensitive to delivery fees. There are other benefits to bundling, and other industries (fast food in particular) have done very well by taking advantage of them.

Sensitivity to price varies between consumers, but also between situations and even individual products.

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