Every brand knows that pricing plays a major factor in purchasing decisions.
Price is one of the most visible parts of any offer, and getting it wrong can cost more than just a few sales. A poor pricing strategy erodes trust, damages positioning, and undermines long-term brand growth. If the initial go-to-market pricing strategy is off, by the time the company makes an adjustment, damage is already done.
But have you ever wondered why some customers chase after every sale while others will pay premium prices without batting an eye?
The answer comes down to price sensitivity, a crucial concept in pricing psychology that refers to how much a change in price influences a buyer’s decision to purchase. Depending on their level of sensitivity, some customers will hesitate or walk away over a slight pricing increase, while other customers hardly seem to notice.
So, what’s actually going on?
In this article, we’ll break down what price sensitivity really means, what drives it, and how you can respond to it.
Let’s get started.
What is price sensitivity?
Price sensitivity describes how much a customer’s behavior changes in response to pricing. It’s a core concept of pricing analytics and a key variable in how businesses ultimately set prices, forecast demand, and position products in competitive markets.
However, while pricing might play a large role in customer purchasing decisions, it’s still only one factor that brands need to consider. Sensitivity to cost can be offset by exclusivity, perceived value, strong brand messaging, and similar tactics.
On top of that, consumer price sensitivity varies between customers within a target market. What will make more price-sensitive customers walk away from a deal won’t bother buyers who can justify those costs based on brand reputation, quality, and other factors.
The amount of fluctuation and variation means that managing price sensitivity isn’t an exact science. It’s something that each brand has to handle on a case-by-case basis for every product and service on offer. Getting it right may require a fair amount of market research and ongoing price adjustments over time.
High vs low price sensitivity
Every consumer responds differently to pricing based on product, cost, and market availability. At either end of the high-low spectrum, a user’s level of price sensitivity can dramatically change how they evaluate a purchase.
Understanding how potential customers will react to pricing changes is crucial for your pricing strategy. For example, it’s possible that approaches like penetration pricing won’t work in areas where customers are highly sensitive.
High price sensitivity
Highly price-sensitive customers are more reactive to even small changes in cost. Their behavior is usually driven by perceived value, budget limitations, and easy access to alternatives and substitutes.
These individuals are more likely to do the following:
- Compare prices across varying brands and platforms.
- Delay or avoid purchases if prices increase.
- Seek out discounts, coupons, or price-matching options.
- Prioritize price over brand, convenience, or loyalty.
This behavior is particularly common in categories where the product is a commodity or functionally similar to others, like office supplies, grocery items, or tech accessories.
For businesses, selling to buyers with high price sensitivity usually means operating in more competitive environments where even minor pricing missteps can impact market share.
Low price sensitivity
Customers who are less price-sensitive are less concerned with finding the lowest possible price and more focused on what they perceive as overall value.
These buyers are likely to do the following:
- Remain loyal to a specific brand or product line.
- Pay more for features, design, convenience, or service.
- Interpret higher prices as indicators of quality.
- Make decisions based on emotion, trust, or status.
This group is more often found in luxury markets, niche services, or high-stakes categories like health, legal, or financial services. In these cases, pricing can actually reinforce a product’s perceived value.
Why are buyers price-sensitive?
At its core, price sensitivity is about how customers perceive value, risk, and fairness in a buying decision. Those values are weighed against total costs, and those internal calculations define the purchasing behavior.
Some buyers are naturally more cost-conscious. They view pricing as the clearest indicator of whether a product is “worth it.” That’s especially true when making everyday purchases or maintaining a tight budget. For these customers, a price increase can signal overspending, leading them to delay, switch brands, or abandon a purchase entirely.
On the other end of the spectrum, some customers are more motivated by trust, identity, or emotional attachment than by cost. These buyers might associate higher prices with better quality and are more likely to tolerate prices if they believe the product or brand is “worth it.”
In other words, the concept of worth changes based on how your customer base perceives value. Price sensitivity can be driven by deeper motivations, many of which aren’t immediately clear or rational, and can be manipulated by applying smart branding and sales strategies to the customer journey.
For example, temporary price changes like sales and discounts can be used to spur purchases from highly price-sensitive consumers. It’s also possible to use high price points as a bargaining tool. One survey found that roughly 85% of customers will exchange an email for a discount; this sort of exchange may not work as well for price-insensitive customers who weren’t bothered by the price to begin with.
Similarly, going the extra mile to increase perceived value for customers can help teams overcome pricing objections down the line. Brands who take the time to submit stunning, eye-catching project proposals may set themselves apart from other competitors, allowing them to stay competitive even above an optimal price point.
Factors affecting price sensitivity
While price sensitivity is shaped by internal perceptions of value, it can also be influenced by external factors. These might include the nature of the product, the strength of your brand, and the overall context of the purchase.
Understanding these variables can help businesses proactively manage and influence customer response to pricing.
Products and alternatives
Price sensitivity varies greatly based on the product being sold.
Commoditized goods (batteries, paper towels, phone chargers, etc.) tend to attract buyers with higher price sensitivity because alternatives are easy to find and differences between products are minimal. In scenarios where product functionality and overall experience is similar, competitive pricing plays a critical role.
Within certain limits, it’s still possible to manipulate pricing decisions through branding and marketing strategies. However, a customer’s willingness to be convinced is markedly lower when the price of a product is double or triple the cost of similar products on the market.
Specialized or high-risk products (medical devices, consulting services, legal support, etc.) often see lower price sensitivity because buyers are more focused on intangible factors like reliability, outcomes, or overall expertise. Differentiation between solutions isn’t as clear, and value is more open to interpretation.
Branding perception
A strong brand presence can dramatically reduce price sensitivity when customer relationships are built on trust, a legacy of strong service, or messaging that aligns your brand values with your customer base.
For example, brands known for providing excellent customer service may retain buyers even at higher prices because buyers feel that issues can be resolved more easily if anything goes wrong. A customer’s price sensitivity becomes secondary to the perceived value of the brand. Assuming that the price difference is negligible, customers may be willing to maintain brand loyalty with the understanding that they’ll have access to support if they need it.
Some retailers try to offset buyer concerns around fear, uncertainty, and doubt by offering add-ons like insurance, protection, or extended service warranties. While these add to the total cost, they can also provide the justification that buyers need to trust the brand and commit to a purchase.
Purchase context
The situation in which a product is purchased can also influence price sensitivity. Everything from buyer urgency to quantity demanded can make price changes less of a concern when purchasing decisions are critical.
If a manufacturing facility needs thousands of pounds of raw materials in order to continue operating, different price points may not matter as much as the ability to acquire the materials in the first place. That’s especially true if a decision needs to be made with urgency, as other factors (time) are more important than price.
However, over time, high prices for critical items can drive long-term customers away. Businesses may find new suppliers if they can’t negotiate preferred rates on necessary materials in order to maximize profits. Regular consumers may try new products or brands with lower quality to challenge their own perceptions.
That’s why pricing models need to be evaluated on a regular basis to account for customer behavior and shifting market forces.
Timing and frequency
Buyers tend to be more sensitive when a purchase is optional or non-urgent, or if the item is bought frequently.
In these scenarios, customers often become more price sensitive because of their constant exposure to cost and the average price range of a given product category. In one study, customers sensitive to week-to-week prices were less store-loyal, regularly bought smaller baskets, bought more private label goods, and were less brand-loyal.
When customers have a strong grasp on the pricing landscape and don’t have a set deadline to purchase, it’s much easier to base decision-making around price when compared to other factors.
Sales, limited-time discounts, and similar approaches can be used to create a sense of urgency or shake up buyer perceptions, but these are temporary solutions that lose value if used too often.
Measuring price sensitivity
Understanding that customers respond to price is only the first step in managing price sensitivity. To understand how these factors apply to your target audience, you’ll need to measure how customers respond to price changes and different marketing strategies.
Unfortunately, there’s no single method that works for every business model. The techniques below can provide valuable insights into how sensitive your customers are to price changes and which pricing strategies are most likely to succeed.
Surveys
One of the most straightforward ways to gather insight is to ask customers directly. Surveys can help you understand not just whether your customers are price sensitive, but why price is a major factor when making a purchase.
One of the best ways to gather this information is with a post-purchase survey. Use PandaDoc Forms or a similar tool to build a customer-facing survey and send it to buyers shortly after the sale is complete.
Ask questions similar to the following:
- At what point would this product feel too expensive?
- Would a 10% increase in price affect your likelihood of making a purchase?
- How would you rank price compared to factors like quality and convenience?
The responses you gather won’t always give you a perfect price, and you won’t hear from respondents who didn’t make a purchase. Because of this, you should always expect to have gaps in your pricing model.
However, with enough information, you’ll be able to better understand how your target audience handles pricing, what adjustments you might need to make, and what strategies you can implement in order to increase sales volume or maximize revenue.
A/B testing
Companies with online sales and flexible pricing systems can use A/B testing to measure price sensitivity in a data-driven way.
In a typical pricing test, two versions of a product or offer are shown to different customer segments. One group sees Price A, and the other sees Price B. The difference might be very small — such as $9.99 versus $10.00 — or more significant, like a pricing shift from $19 to $25. The results can reveal how much price impacts conversion rates, average order value, and overall revenue.
Quick note: Charm pricing refers specifically to pricing methods designed to create the illusion of a lower price even though the difference is negligible (e.g. $10.00 versus $9.99).
This experiment has been conducted multiple times over the years, and it works. In one study, adding a $.99 price ending increased demand in multiple controlled experiments.
This method can also be used to test other variables, such as whether bundling products or offering time-limited discounts changes customer behavior. Psychological pricing cues like charm pricing, rounded numbers, or framing language can also be tested to identify subconscious price sensitivity.
This type of experimentation is especially useful for uncovering micropatterns in buyer behavior that surveys might miss. It’s not uncommon to find that certain pricing structures perform better not because they’re cheaper but because they “feel” more fair or easier to justify.
Historical data
Businesses with years of sales records at their disposal can reference that data to learn more about price sensitivity over time. By analyzing past changes and outcomes, it’s easier to identify trends that signal how sensitive your target audience will be to a shift in price.
High-quality transaction data is one of the most valuable assets for companies over the long term, especially for price optimization. Companies can look back holistically to get a full picture of how pricing impacted sales over time, rather than looking at snapshots and trying to extrapolate the data.
Because the data is also proprietary, it’s an internal source that can be used to measure pricing data in a way that is unique to the organization, its products, and its long-term goals. Using this information allows teams to measure sensitivity by checking a historical reference price, comparing that to existing prices, and using those data points to model how customers might react to future change.
Price elasticity of demand
Price elasticity is an economic concept that tries to quantify how much demand changes in response to a change in price.
Prices with high elasticity, like non-essential items or products with plenty of alternatives, tend to be more sensitive to small price changes. Low elasticity items like medications or niche software tend to hold demand when prices rise because customers still need them.
Calculating the exact elasticity of a product usually requires a robust set of data for statistical analysis, but estimating this trait is much easier if you have historic data or you’re willing to gather data through A/B testing, surveys, or similar methodologies.
Once you have an idea of how much elasticity a product has, it’s much easier to predict how sensitive users will be to a change in price.
How to reduce price sensitivity
Some degree of sensitivity is inevitable in any market, and brands only have a limited amount of control over how consumers will react as prices rise. Some customers will stick it out for the long run, while others will seek competitors almost immediately.
Some of this will depend on how you approach pricing and products. Obviously, something like a double digit percentage change overnight is more likely to irritate customers than a three-percent year-over-year increase to keep up with operating costs.
However, with the right strategies, businesses can reduce the role that price plays in purchasing decisions and shift the conversation toward value, experience, and trust. Here are a few strategies that you can use to keep the focus on the value and off the price tag.
Bundling
This approach involves grouping multiple products and services together at a single, often slightly discounted price. Doing so creates the perception of greater value while also obscuring a line item price for every item included in that product bundle.
For brands who enjoy success with bundles, this strategy is usually intermixed with other tactics like price laddering and high pricing for individual products, services, or items.
For example, many online streaming companies offer multiple plan options in a “good, better, best” format. The good plan gives you some basic features, but may not include everything or may have some drawbacks (like ads). The next tier offers more features and benefits, and the “best” plan delivers the premium experience.
At the same time, some companies still offer rentals or the ability to purchase a streaming license for a particular show or series. These one-off costs are often exceptionally expensive, sometimes five to six times more costly than purchasing a streaming plan, to de-incentivize customers from this buying behavior.
Between those two approaches, bundling can shift the focus away from the unit pricing and toward overall value, even if the overall discount is relatively small.
Loyalty programs and commitment lock-ins
Repeat customers are often less price sensitive than newer ones, but loyalty programs like point systems, member discounts, and exclusive offers can build goodwill and investment over time. Similarly, brands that offer long-term commitment lock-ins can reward customer loyalty with up-front discounts.
Note: Full disclosure, we use this strategy, combined with bundling options, with our own PandaDoc pricing. Purchasing PandaDoc with an annual plan can save up to 46% on costs.
The type of program that makes the most sense will vary from brand to brand. For example, most SaaS brands offer both monthly and annual pricing, with the long-term commitment offering a notable discount as a reward for the extended term. This approach incentivizes longer-term contracts and an extended relationship, which SaaS companies need in order to project stable revenue.
More traditional loyalty programs might offer membership discounts, saving based on spend amount, reward programs, or similar setups. Most of the time, these programs are relatively minor and offer negligible rewards while remaining competitive enough to keep users invested.
Companies using loyalty programs can also offer benefits like personalized incentives, exclusive deals, or add-on benefits that allow buyers to further customize their user experience.
Ecosystem alignment
Ecosystem commitments have become more prevalent in multiple industries, from tech to agriculture. The idea is straightforward: The more branded products you have, the better the entire system works together.
Big brands like Apple are known for this model. The more Apple products a user has, the greater the capabilities available to them. Macs can share data with iPhones, which can push data to Apple Watches, and so on. And, with every purchase, users become more and more locked into that ecosystem, making them less sensitive to pricing changes due to heavy prior commitments.
And Apple isn’t the only one. One survey found that about half of high-performing companies are more likely to have an ecosystem strategy in place when compared to industry peers, and more than half are likely to generate at least 60% of their revenue from ecosystems. That’s huge!
If your company is in a situation where building an ecosystem makes sense, building into it is one of the best ways to overcome pricing challenges. Major increases in price will still cause some users to break away, but if customers have committed to your products or services as a part of their business operation, it’s much harder to make that change.
Better marketing strategies
Sometimes, the problem isn’t the price; it’s how the price is justified to the customer through official announcements or marketing strategies.
While standard or small price increases are often ignored, rapid increases or overhauls to the pricing model may raise flags or attract customer attention. Similarly, marketing can play a role in how pricing is positioned to a customer, but the results are often situational and may not apply to certain brands.
Here are a few examples of marketing and positioning strategies that you might consider.
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Remove currency symbols. When tested in an upscale New York restaurant, studies showed that sales improved by around 8%, potentially because the removal of currency symbols and pricing language allows customers to mentally detach themselves from overall costs.
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Adjust your font sizes. A 2016 study found that varying font sizes actually alter how the brain perceives products and deals. A large regular price font draws attention to the deal itself while a larger sale price encourages consumers to focus on the final price and perceived product value.
- Frame incidental purchases with care. For users who want to be thrifty and who think they’re getting a deal, framing fees as an incidental purchase can reduce sensitivity to it. For example, one study framing a $5 fee as a “small $5 fee” found individuals who viewed themselves as thrifty (“spendthrifts”) were more likely to pay it when compared to “tightwads” who were far more sensitive to the “pain” of paying.
It’s also worth noting that improving value propositions can go a long way toward justifying the price. Strong communications that reinforce what a customer gets, why it matters, and why it’s worth the cost can affirm that a product or service is the best option to help users accomplish their goals.
For repeat customers who are already bought into the service, the conversation changes from sales to renewals and continuing service. The messaging is different, but rolling out a strong marketing plan before a sizable price increase is one way to soften that blow.
Price smarter and sell faster with PandaDoc
Price sensitivity affects almost every business, but it doesn’t have to control your sales process. By understanding what drives buyer behavior, adjusting how you position your value, and refining your pricing strategy, you can create an experience where customers focus less on cost and more on outcomes.
That messaging starts with your first proposal or quote — and that’s where PandaDoc can help.
Our CPQ solution makes it easy to configure complex offers, bundle products and services, apply discounts, and customize pricing for every customer within a single workflow. With PandaDoc CPQ, teams can build on-brand, dynamic proposals and quotes that reflect value, reduce pricing objections, improve close rates, and much more.
It’s that easy with PandaDoc. Sign up for a free demo with one of our product experts and see the difference for yourself.
Disclaimer
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Frequently asked questions
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Price sensitivity is a general term that describes how much a customer’s behavior changes in response to price. The reason for those changes can vary greatly, from emotional or psychological reactions to situational factors that influence a buyer’s perception. Learning more about sensitivity can help you understand why a customer responds to specific pricing.
Price elasticity is a specific economic measure that tries to quantify how much demand changes in relation to price. For example, if a 10% price increase causes a 20% drop in demand, the product is considered elastic. Learning more about price elasticity can help you understand how much customers respond to your pricing changes.
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Realistically, price sensitivity is a mix of market forces and customer decisions. If customers are consistently making choices based on cost, even after branding, bundling, and value enhancements, it may be more effective to work with that behavior rather than trying to push against it.
In these cases, brands may want to focus instead on operational efficiency, competitive pricing models, or segmentation strategies that tailor offers to different sensitivity levels. The key is knowing when resistance is a signal to adjust your positioning and when it’s an opportunity to create new product tiers or entry points.
However, this is a decision that needs to be made on a per-company and per-segment basis. There isn’t a hard and fast rule that applies easily across all industries and market sectors.
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Price sensitivity directly informs how you position your products, structure your pricing tiers, and communicate value.
If your audience is highly sensitive, you may need to use pricing psychology and techniques to increase conversion. In less sensitive markets, your pricing strategy can lean into brand, outcomes, and emotional drivers instead.
In both cases, ignoring sensitivity or continuing to operate without a plan to deal with it can lead to lost revenue, unnecessary churn, and pricing solutions that don’t align with customer expectations.
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Not always. Higher prices can deter price-sensitive buyers, but it can also attract customers who associate cost with quality, exclusivity, or prestige.
In some markets, raising prices can actually increase demand, especially when a product or service is viewed as a premium solution.
Price sensitivity may also impact pricing strategy in a more traditional way. For service-based brands with more customers than it’s possible to handle, an easy solution is to raise prices until demand aligns with deliverability. By raising the bar, companies can lessen demand while still ensuring maximum profitability.
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Yes, and it’s a powerful one. Customers with strong brand loyalty are often far less sensitive to pricing changes.
They trust the product, believe in the brand, and are less likely to shop competitors when prices rise.
This is why brands invest in long-term relationship strategies like ecosystems and lock-in service contracts. Over time, customers integrate with the brand and the service, making them more loyal and less likely to churn if and when pricing changes.
