Price sensitivity refers to the degree to which the price of a product or service affects consumers' purchasing decisions. In simpler terms, it measures how sensitive your customers are to changes in price. If a small increase in price leads to a significant drop in sales, your customers are considered highly price-sensitive. On the other hand, if sales remain steady despite a price change, your customers are less sensitive to price.
Understanding price sensitivity is crucial for e-commerce owners because it directly influences your pricing strategy. Knowing how your customers respond to price changes can help you set prices that maximize profits without losing sales. For example, if your customers are highly price-sensitive, even a slight increase in price might drive them to your competitors. Conversely, if they are less sensitive, you may have room to increase prices without significantly impacting sales.
