Price sensitivity of a product refers to the level of importance buyers place on price relative to other purchasing criteria. Customers looking for top quality or service, for instance, are usually less price sensitive than economical bargain hunters. The level of sensitivity for a given product is known in economics as elasticity of demand. There are nine factors leading to price sensitivity as below:
1. The product is more distinctive.
2. Buyers are less aware of substitutes.
3. Buyers cannot easily compare the quality of substitutes.
4. Expenditure is a smaller part of buyer’s total income.
5. Expenditure is small compared to the total cost.
6. Part of the cost is paid by another party.
7. Product is used with previously purchased assets.
8. Product is assumed to have high quality and prestige.
9. Buyers cannot store the product.
Explain with a valid example to show your understanding of the topic.