9 Factors To Crack the Code of Price Sensitivity


(By Alec Drake) In the highly competitive sales world, understanding price sensitivity is crucial for radio sales managers to navigate negotiations, create compelling proposals, meet customer needs, and close the right business for optimal revenue results. 

Price sensitivity is influenced by various factors that shape customer perceptions and intentions. By recognizing and leveraging these factors, sales managers can effectively manage price objections and maximize revenue performance. This post reexamines nine key factors and offers strategies to apply them in radio sales.

The Substitution Factor: The availability of substitutes can significantly impact price sensitivity. Customers may try to leverage the substitution effect to negotiate lower rates. To counter this, it’s crucial to tell your story and emphasize the distinctive qualities of your product or service, making it less substitutable in the eyes of the prospect. Realize that when prospects say they can buy around you, they want to buy you first, hence their objection.

The Comparison Factor: In the age of information transparency, customers can easily access data for comparing products and services. This has increased their power when it comes to price negotiations. To reduce the comparison effect, highly customized proposals and increased value propositions outside of using ratings can help support your offerings and mitigate price sensitivity.

The Volume Factor: Customers often seek discounts by offering to purchase more volume or inventory. Managing these negotiations requires careful consideration of terms and conditions to limit the sale of valuable inventory at lower rates. Annual negotiations involving multiple price sensitivities require a strategic approach to maintain profitability while satisfying customer demands.

The Differentiation Factor: Building value through differentiation is essential. You can minimize price sensitivity by effectively communicating what sets your brand apart. It’s essential to focus on building value before introducing price, as customers are more likely to object to the price when they haven’t fully appreciated the unique benefits your brand offers.

The Composition Factor: The composition effect is triggered when stations expect a more significant share of the marketing dollars from a customer. While this can generate more revenue, it creates downward pricing pressure and reduces yield. Balancing the desire for a larger market share with revenue targets and future demand opportunities is crucial to maintain profitability. Understand how much of the pie you can take before it’s a negative on reaching your goals.

The Proportion Factor: Clients with access to cooperative funding for campaigns exhibit lower price sensitivity. These customers can be strong prospects, but managing their accounts requires additional effort. Investing in a funding specialist inside your station can yield bottom-line benefits and support sales teams that shy away from this opportunity.

The Post-Purchase Factor: Existing customers who have experienced the value of your product or service are typically less price sensitive during renewals. Their familiarity with your brand and previous positive experiences make them less likely to be aggressive in pure rate negotiation. Leveraging this post-purchase effect is an excellent opportunity to secure long-term relationships and billing to offset more price-sensitive prospects.

The Quality Factor: Price often defines quality in customers’ minds. Higher prices are often associated with better quality. You can mitigate price sensitivity by effectively communicating value and quality. Conversely, setting prices too low may raise questions about quality and the potential for results. Endorsements are an excellent example of the quality factor supporting higher prices.

The Inventory Factor: Customers demonstrate less price sensitivity when they believe prices will increase in the future or when limited inventory is available. Promoting inventory demand and forecasting sellouts can support higher pricing based on the perceived scarcity of the product.

Conclusion: Price sensitivity is a complex phenomenon influenced by multiple factors. As sales managers, it is crucial to understand these nine factors and tailor pricing strategies accordingly. 

By recognizing the role of differentiation, substitution, comparison, volume, composition, proportion, post-purchase experiences, quality, and inventory, sales managers can effectively navigate negotiations, create value-driven proposals, meet customer needs, and drive successful sales outcomes. 

Strategic pricing practices, supported by historical and predictive information and consistent terms and conditions, will enable sales teams to maximize revenue performance and achieve long-term success.

Source: Pricing and Rate Forecasting Using Broadcast Yield Management by Shane Fox and published by the NAB in 1992.

Alec Drake advises and writes on revenue management strategies. He founded T.R.I.P. “The Radio Invigoration Project” group on LinkedIn and publishes a monthly newsletter, The Sales T.R.I.P. Email Alec at [email protected]. Previous Radio Ink columns are available at Radioink.com/author/adrake.


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