when companies and product manufacturers study and analyze price sensitivity they can make sound decisions about products and services 
understanding price sensitivityprice sensitivity can basically be defined as the extent to which demand changes when the price of a product or service changes the price sensitivity of a product varies with the relative level of importance consumers place on price compared to other purchasing criteria some people may value quality over price making them less susceptible to price sensitivity for example customers seeking top quality goods are typically less price sensitive than bargain hunters so they re willing to pay more for a high quality product by contrast people who are more sensitive to price may be willing to sacrifice quality these individuals will not spend more for something like a brand name even if it has a higher quality than a generic store brand product price sensitivity varies from person to person or from one consumer to the next some people are able and willing to pay more for goods and services than others companies and governments are also able to pay more compared to individuals but even one individual can have different price sensitivities for different purchases for instance someone may price shop when they re buying paper towel but be more focused on quality than price when they re looking for a dining room table at some point demand will fall to or close to zero if it reaches a certain price the law of demand states that if all other market factors remain constant a relative price increase leads to a drop in the quantity demanded inelastic demand means consumers are more willing to buy a product even after price increases high elasticity means even small price increases may significantly lower demand in a perfect world businesses would set prices at the exact point where supply and demand produce as much revenue as possible this is referred to as the equilibrium price although this is difficult computer software models and real time analysis of sales volume at given price points can help determine equilibrium prices even if a small price rise diminishes sales volume the relative gains in revenue may overcome a proportionally smaller decline in consumer purchases influences on price sensitivityprice sensitivity places a premium on understanding the competition the buying process and the uniqueness of products or services in the marketplace for example consumers have lower price sensitivity if a product or service is unique or has few substitutes consumers are less sensitive to price when the total cost is low compared to their total income likewise the total expenditure compared to the total cost of the end product affects price sensitivity for example if registration costs for a convention are low compared to the total cost of travel hotel and food expenses attendees may be less sensitive to the registration fee 