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Price changes can have a significant impact on consumer behavior, but the way consumers react to these changes will vary based on a number of factors. Let's take a closer look at some of the reasons why consumers might react differently to price changes.
“Value is top of mind, but we have to think about value more holistically than just price,” Gomez said, noting consumers also want quality, ease and convenience” – RETAIL DIVE
Top 5 reasons why consumers react differently to price changes:
1. Perceived value: Consumers are willing to pay more for products or services that they perceive as having a higher value. For example, a luxury car brand can charge a higher price because consumers believe that the brand represents quality and prestige.
On the other hand, if a consumer perceives a product to be low-quality, they may be less willing to pay a higher price for it.
"AI technologies use dynamic pricing models to help predict customer behavior, supply, and demand to alert salespeople when to increase or decrease the price of a product or service" – HubSpot
2. Brand loyalty: Consumers who are loyal to a particular brand may be less likely to switch to a competitor if prices increase.
For example, if a consumer has been buying a particular brand of shoes for years and enjoys it, they may be willing to pay more for it even if there are cheaper options available.
By lowering your price by $2-$3, if your margin is flexible, you’ll get double the clickthrough rate, which will get you about a 50% reduction per click” – Search Engine Journal
3. Income level: Consumers with higher incomes may be less sensitive to price changes because they have more disposable income. On the other hand, consumers with lower incomes may be more likely to switch to cheaper options if prices increase.
"A study done by pricing experts at McKinsey and Company and published in Harvard Business Review found that a 1% price improvement results in an 11.1% increase in profits" - HubSpot
4. Availability of substitutes: If there are many substitutes available for a product, consumers may be more likely to switch to a cheaper option if prices increase.
For example, if the price of one brand of apparel increases significantly, consumers may switch to another brand that is similar in taste and quality but costs less.
“Today, almost all consumers check reviews and compare prices both online and offline before making a purchase. Omnichannel is the new normal as consumers can shop from any channel they desire for easy availability” – Bastian Solutions and RETAIL DIVE
5. Personal preferences: Finally, personal preferences can play a role in how consumers react to price changes.
Some consumers may be willing to pay more for products or services that align with their values or beliefs, while others may prioritize cost over other factors.
“80% of the performance of your shopping campaigns will be down to your image and the price that’s showing on that product” – Search Engine Journal
In summary, there are many factors that can influence how consumers react to price changes. But by understanding these top factors, businesses can better anticipate how their customers will respond and adjust their pricing strategies accordingly.
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