Levels of Price Sensitivity

A casual conversation about wristwatches got me to thinking about customer price sensitivity: I have not seen a resource (nor has searching the Web turned up one) that provided a categorization schema that seems to accurately reflect the way in which consumers consider price.   There is general concern, and general consideration, that the price of a given item is affordable and/or acceptable to the market - but the consideration seems to be binary: customers will or will not buy at a given price.

Ultimately, the decision to the customer is also binary - to buy or not to buy, though a closer examination of the "not to buy" option in regard to the stated price (given that for most purchases customers decide whether a product meets their needs and merits consideration) is a bit less direct: clearly if a product is initially regarded as unaffordable, the customer must revisit whether fulfilling some needs merits sacrificing others.   But there are also instances in which an affordable price creates hesitation: the price seems too low, and this arouses doubt.

Stepping back for a moment, the manner in which a customer sets the amount they are willing to pay for a given item (which drives the way a seller should seek to price his items), absent a specific example, seems to be ill-defined even for an individual.  That is, in our conversation about wristwatches, there was a vague sense that there is a price range that is expected: how much is "too expensive" depends on finances, how little is "too cheap" touches more on the notion of mistrust: the suspicion that the item is shoddy, a forgery, or even stolen goods.

The question of "how much would you pay for a wristwatch" caused some deliberation - likely because it's a luxury item that some expect to pay a significant price to obtain. Pay too little, and you get a product that is no good; pay too much, and you're wasting money.  (And yes, this touches on the way in which the customer regards an item: some people pay significant amounts for a wristwatch as a status symbol others regard it as utterly unimportant and are happy with a cheap disposable - but both are likely extremes, and a distraction from the point at hand.)

This leads to a categorization schema that includes the extremes (too much, too little), the sweet spot (about right), and two categories in-between:

• Expensive - The consumer in question would not consider an item in this class at all. Though there may be perception of very high quality, it does not merit the price. (For wristwatches, specifically a men's dress watch, we agreed this price would be $5,000 or more.)
• Costly - The consumer might be reluctant to pay this much, but would ultimately be willing to do so on the basis that he is getting good value for the price. (We belabored this a bit, but set a range of $1,000 to less than $5,000.)
• Average - The price seems about right to what the customer expects to pay for the item, and there is no reluctance or hesitation in making the purchase, though a diminished sense that the item has quality. (The range we discussed was $500 to less than $1,000.)
• Value - The price seems a bit lower than what is expected, and there's more hesitation over quality, but it still seems reasonable that the customer may be getting a good deal on an item of fair quality. (Our range for was $100 to $500)
• Cheap - The price is suspiciously low, and the customer would refuse to purchase the item because their suspicions are that the quality is very poor, or that the watch is a knockoff or possibly even stolen goods. (Anything under $100)

I don't expect those numbers will hold up for the broader market - it was a conversation between two consumers of the same general income bracket, not to mention other geodemographic similarities - but my sense is that a broader survey would still likely find the same categories, with the same rationale, though the dollar amounts would vary according to the income and culture of respondents.

This also feeds back to the three-category system of too little, about right, and too much. But the off-center categories of "costly" and "value" are significant: these are ranges in which the customer would hesitate to purchase, but might ultimately decide to do so after some internal deliberation.

I'm now beginning to meditate about how a marketer or a salesman might work on prospects who find themselves in the quagmire of costly/value and help the customer to sort out their reluctance, hopefully to overcome it, but at the very least to make a firm decision so the buying process can move forward - but that's likely a separate consideration and I've nattered on quite long enough.