An effect of the inflationary crisis that is fading? Still, more and more consumers are paying attention to prices. However, this does not mean that they want the cheapest at all costs.
According to a study conducted by the consulting firm Boston Consulting Group (BCG), 70% to 90% of consumers around the world, in both rich and poor countries, describe themselves as being “price sensitive.” However, the same report cautions against the idea that consumers would always prefer the lowest price.
Certainly, the price constitutes key information on the market, because it is present in all purchasing situations. But being price sensitive doesn't necessarily mean looking for the cheapest option. Rather, it invites reflection on value, context, and personal circumstances. The interaction between these three elements shapes the way consumers perceive the cost of the same product. This has important implications for businesses: developing effective pricing strategies must go beyond simplistic assumptions, integrating all dimensions of price sensitivity…
The importance of circumstances
Context, product type, urgency of purchase, social settings and marketing tools used, such as promotions, can have a significant impact on price perceptions and sensitivity. Starting with the context in which a price is presented. The same amount is not received in the same way depending on the circumstances. Wakefield and Inman have thus shown that consumers are less sensitive to price in certain social situations, where purchases are motivated by social approval or by the search for emotional experiences. For example, a bottle of water costs more in a restaurant or at a festival than in a supermarket, because the context – convenience, scarcity and ambiance – adds perceived value.
Consumer price sensitivity is also influenced by the type of product. Studies by U.S. university professors show that consumers often choose low-cost alternatives in categories like everyday groceries or household items. However, the same people may be willing to invest more in products where quality or emotional satisfaction is essential, such as technology or personal care. This trend is particularly marked for “hedonic” goods or experiences like going to the cinema. In these situations, emotional value may trump price concerns. Conversely, for functional products like groceries or household supplies, consumers tend to be more price conscious due to tighter budget constraints.
The nature of the product plays a critical role in how price sensitivity is shaped: functional items drive more price-conscious behavior, particularly among low-income consumers who actively search for deals and compare prices. In contrast, hedonic products produce less price sensitivity, particularly among higher income segments. These findings have important implications for businesses. While “premium” pricing may work for hedonic products, competitive pricing or discounts will be more attractive for functional items.
Rarity and cognitive limits
But these are not the only important elements. Other factors come into play such as scarcity and cognitive load. So, we have limited mental capacity to process all the information around us – this is called cognitive load, a well-studied concept in social psychology. This burden, combined with scarcity, directly influences how we, as consumers, make decisions, particularly around price sensitivity.
Limited financial resources, whether cash or access to it, push consumers to make thoughtful trade-offs, weighing each dollar spent carefully. For example, without immediate access to their wallet, they become more attentive to their spending.
A study from Princeton University shows that the scarcity of a product makes people focus on trade-offs, making price a central factor in their purchasing decisions. When resources are limited, cost becomes more important, thereby increasing price sensitivity. When consumers have limited financial resources, they become more consistent in their evaluation of products, carefully weighing the trade-offs between their different needs. This behavior is particularly pronounced among low-income consumers, who experience greater emotional and cognitive pressure when making purchasing decisions. As a result, research shows they are more likely to think long and hard, increasing their price sensitivity as they seek to maximize the value of each expense. For businesses, this means that catering to low-income consumers requires a focus on value rather than simply offering low prices.
The price of flexibility
Conversely, other research confirms that higher-income consumers are more willing to pay extra for flexibility when making purchases, such as for airline tickets, where the convenience and potential savings of flexible options outweigh them. outweigh price concerns. This is a good example of consumers who, although price sensitive, do not seek the lower price… whatever it costs.
In general, wealthier consumers are less responsive to small price fluctuations, especially in categories where convenience or emotional satisfaction play an important role. For example, higher-income consumers may be willing to pay a higher price for convenience and flexibility – such as airline tickets with added benefits, more expensive but ready-to-eat products, or purchases at well-located markets with higher-priced products – because the cost of finding a lower price, in terms of time and effort, outweighs the potential savings. So they prefer convenience over financial savings that may not be worth it.
However, they evaluate whether the benefits justify the higher price. This indicates that companies targeting affluent consumers can adopt premium pricing strategies by providing added value without harming demand.
The role of discounts and promotions
Surprisingly, price perceptions and sensitivity are also shaped by consumers' perceptions of the macroeconomic environment, not just their personal financial situation. Research carried out in different countries has shown that in an unfavorable macroeconomic environment, consumers become even more price sensitive, especially for essential goods. As a result, many consumers became more price conscious during and after the Covid crisis.
In addition to these contextual factors, discounts or limited-time offers influence price sensitivity. These marketing actions, such as exclusive, limited-time collections, create a sense of urgency, allowing companies to justify higher prices, without cutting costs. Lower-income consumers, subject to budget constraints, are particularly responsive to these offers. On the other hand, those with higher incomes, whose opportunity cost of time is lower, compare prices less, favoring convenience and flexibility.
Additionally, studies show that large families and those with tight budgets spend more time searching for deals and are more price sensitive on essential goods. These factors highlight the need for companies to adopt nuanced pricing strategies that take into account context, consumer income and specific purchasing circumstances.
Have flexible strategies
Price-sensitive consumers are diverse, representing different income levels. Although they share increased price consciousness, this does not always lead to the cheapest choices; they assess overall value, including quality, brand reputation and long-term benefits.
