ABSTRACT
Quantitative estimates of customer price sensitivity and willingness-to-pay can substantially improve both price setting and price segmentation. Indeed, some estimate of price sensitivity, whether it be quantitative or qualitative, is required for the price setting process described in Chapter 6. Sometimes research can provide very specific estimates of the impact of prices on sales volume. Other times estimates provide only a rough indication of a customer’s willingness-to-pay given a set of circumstances. At their worst, estimates of price sensitivity fail to reflect the real nature of the buying decision, misleading management into making ineffective pricing decisions. This is often the case when a research design causes respondents to pay much more attention to price than real customers would. In almost all cases, it is possible to develop an estimate of price sensitivity somehow. The key to using the estimate to make a better decision is to recognize that even a very precise estimate is not necessary very accurate or unbiased. It is only an approximation of the actual value or price sensitivity. We always need to consider how differences between a real purchase situation in the future and an experiment in the present or past can change the impact of price on choice.
