How to Convince Price Sensitive Customers to Spend Their Money

Posted by Moira McCormick on June 9, 2016
Moira McCormick


  • Are your customers suffering from price tag shock?

  • Is price sensitivity hurting your sales?

  • Are your customers rejecting your product or service?

  • Do you know why this is happening?

  • Do you really know your niche and your customers? 

However great your product, if it's not selling there's likely to be an issue with price sensitivity - and if any or all of the questions above are familiar to you or your business you might need to reflect long and hard on this thorny issue– and how you can more easily convince your customers to part with their cash.

What is Price Sensitivity?

Price sensitive customers are those who view price as a serious factor in a purchase. Some customers view extremely low prices as too good to be true and may assign a poor value to a product without having tried it. These types of prestige price customers often refuse to purchase a product of lower cost.

On the other hand, bargain hunters may only look for the lowest cost possible, without regard to the overall quality or longevity of the item. Learning how to deal with price sensitive customers helps improve sales and customer service initiatives.


The Consumer Decision-Making Process

According to Kimberly Chulis, founder of Core Analytics, LLC, consumers go through a five-step decision-process prior to buying.

  1. Need recognition. The buyer realizes they are somewhere between an “actual and preferred state.” Whether it is because of marketing, advertising, or peer pressure, they want to buy.

  2. Information search. The buyer sets out to find more information on what they want to buy.

  3. Deliberation. Using the information gathered, the customer determines what the options are, and if there are other alternatives or things to keep in mind before continuing. This is where price sensitivity can develop, and where you can lose your customer.

  4. Purchase. The customer determines what to purchase, and buys.

  5. Post-purchase. The customer decides if this was what he or she wanted, if it was a good decision, if they have buyer’s regret, and if it’s time to return the product or ask for money back.


Step three is where a customer decides whether or not to buy, and it comes after they’ve done their research and decided they need something. Price sensitivity can develop during step two when customers can compare and decide whether your price is too high or if it is fair.

Step five, particularly if a customer is having second thoughts, is where you can increase the value of a purchase through great customer support. Even if you refund a sale, handling it well at this point will build brand loyalty and reduce future price sensitivity towards your product or service.


What affects price sensitivity?

Price sensitivity varies based on the industry, geographic competition, competitor marketing, personal emotions and needs of customers, and even economy.

High price sensitivity means that customers will reject purchasing your product or service based on prices they deem unreasonable. Low price sensitivity means that they are not especially bothered by the price tag. The higher the price sensitivity, the more the customer is in control.

A first logical step to overcoming price sensitive issues to measure how sensitive your customers and potential customers are about price.


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The Price Sensitivity Meter (PSM)

Proposed by Dutch Economist Van Westendorp in 1976, the Price Sensitivity Meter (PSM) is a simple, inexpensive technique to measure consumer price preferences. PSM is all about asking questions of your customers and seeking their feedback.

Van Westendorp suggested some standard questions that can vary, but generally take the following form:

  • At what price would you consider the product to be so expensive that you would not consider buying it? (i.e. too expensive)

  • At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (i.e. too cheap)

  • At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (i.e. on the high side)

  • At what price would you consider the product to be a bargain - a great buy for the money? (i.e. cheap/good value)


You just plot the cumulative percentages and make inferences from the different interactions and their relationships between various plots. You will of course also interpret the plots with your experience and understanding of the market, enabling you to zero in on the right price.


Ways to Reduce Price Sensitivity

Emphasise Value

Start talking about the value your offering delivers before the customer can bring up “how much does it cost?”. Make the customer see how you can help them improve their bottom line and streamline their bottlenecks. Consumers generally want an effective, useful and convenient product, regardless of the price.


Focus on Benefits and Not Features

Your customers may be using a comparison checklist with your competitors. Work out beforehand a cost-benefits analysis chart. Help the client understand that the money he is spending is actually an investment in the future. A better ROI is a very appealing argument.


Stress how best your product can solve their problems

Time saving is a good one. If they are arguing that you lack features X and Y (unlike the competition) show them for example, how your feature Z will give them an X% jump in productivity.


Do Your Homework

  • Not every lead is worth your while. A chance at closing a deal arises when you can zero in on the potential lead who is genuinely interested in your offering.

  • Research the prospect to save your time and effort. Make sure they are in need of your offering and (if you can) that they have the money to pay.

  • Familiarise yourself with the nature of their business and the issues that they might be facing. Learn how their competition is tackling these problems effectively. Make a pitch that’s laced with past performances, present-day solutions and future profits.

  • Always ask what their budget is before moving too far into the sales process. Probe them if they’ll be okay with paying extra for added value and how flexible they will be once they have learned about the enhanced value you are offering.


Beef-up Your Brand

It takes quality and consistency to become a brand that people open their wallets for. When you are an established brand that has a recall value, you don’t have to work hard to convince people about the value and benefits that you bring to the table. During the establishment phase you will need to:

  • Demonstrate that you care for your customers

  • Emphasise the durability of your product

  • Stress your excellent customer service

  • Get people to talk about you by writing an awesome blog

  • Remember to quickly respond to feedback


Consumers who buy based on anything but price (emotional reasons, for example) aren’t going to respond necessarily to issues of quality and benefits, but they still respond to brands – and if you’re a little fish in a big ocean, developing brand loyalty is how you compete.


Track Conversions

If you’re selling online, track conversions. How many are coming to your page? How many are leaving? How many are buying? Document these stats, and then test different price points. In some situations, a higher price point might be better because the customer associates the higher price with more value.


Be Compelling and Competitive

Monitor your competitors daily to check if you are overpricing, but do not consider underpricing. The latter will not only eat into your profit margins but may also create a perception of low quality.

Your pricing should be competitive and compelling enough to lead the competition, drive sales and generate better margins. Up-to-date pricing intelligence lets you make snap decisions that could have a positive impact on your business.


Delivery Charges

Are your customers sensitive to the price of delivery? Research shows that 74% of shoppers online abandoned baskets due to high delivery costs. Given this figure, it is essential to monitor your shipping charges vis-à-vis your competition, and check whether your rates are reasonable or not.

Alternatively, you can go through various delivery charges to come up with a flat shipping rate for your products.



Price Sensitivity is not an insurmountable problem. You just have to analyze all the information that you have gathered and use this information to develop an appropriate price for your specific product or service.

Price will invariably cast its shadow over your sales proceedings at some point – remember, it's better that you get this issue sorted out early rather than later in the sales process.

Just like Goldilocks, you need to ensure that your price is "just right" - not so high that consumers turn to your competitors, and yet not so low that your products are viewed as low quality.



Topics: Pricing Elasticity

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