Situational Price Sensitivity in Marketing Essay

Situational Price Sensitivity in Marketing - Essay Example Each customer will have a certain price acceptability window and different customers have different limits in their perceptions of what price is within their range. Pricing is an extremely important part of the marketing mix that has been neglected for a long time. It is the only marketing strategy variable that generates a positive cash flow. The remaining variables (Advertising and promotion, product development, selling effort, distribution, packaging) all create costs. To optimize pricing and all related marketing mix instruments, price sensitivity is an essential contract. Sensitivity is defined as "the response of an organ or organism to external stimuli" (Webster's Third New International Dictionary 1993). Price Sensitivity is used by organizations that are working with unknown pricing situations, new products, products that offer thin margins or products that offer improved benefits to established products. Put together, the term price sensitivity clearly refers to the response of an individual to the amount of money asked or paid for a good or service. This commonsense definition is generally agreed upon (e.g., Hoch et al. 1995; Tellis 1988). It indicates what effect a price change will have on the buyer's intention to purchase a given product or class of products. If buyers are considered price sensitive, changes in price will cause (definite) changes in their buyer behavior. If they are not price sensitive at all, price changes will not result in a change in their purchasing behaviour. In this study, price is assumed to have a negative effect on the purchase probability. A higher price will normally lead to lower demand.(1) Price is hence a negative attribute of an electronic entertainment product. Price sensitivity is defined as the degree to which consumers use price as a decision-making criterion (Lichtenstein, Bloch, and Black 1988). However, its analysis has been mostly focused on traditional consumer goods like groceries or apparel, which have different characteristics in production and consumption than electronic entertainment or media products. In order to assesses what actions have to be taken by media companies to react to price sensitive consumers, the price sensitivity construct and its determinants and consequences have to be scrutinized. There have been many prior studies of how advertising affects two equilibrium quantities: the price elasticity of demand and/or the price level. Our work is differentiated from previous work primarily by our focus on how advertising shifts demand curves as a whole. As Becker and Murphy pointed out, a focus on equilibrium prices or elasticities alone can be quite misleading. Indeed, in many instances, the observation that advertising causes prices to fall and/or demand elasticities to increase, has misled authors into concluding that consumer "price sensitivity" must have increased, meaning the number of consumers' willing to pay any particular price for a