Price sensitivity is relative to a customer's thought process when
dealing with significant purchases. Priceline.com is a travel service that offers leisure
airline tickets, hotel rooms, rental cars, vacation packages and cruises. Priceline.com
also has a personal finance service that offers home mortgages, refinancing and home
equity loans through an independent licensee.
Price sensitivity is the extent to which price is an important criterion in the customer's decision- making process; thus a price sensitive customer is likely to notice a price rise and switch to a cheaper brand or supplier. By improving customer intimacy, suppliers reduce price sensitivity and increase the amount they can charge customers. For example, by offering their customers overdraft protection, banks increase the utility credit card holders see in staying with them. Another advantage is that credit card companies cannot offer the same type of insurance. Another familiar example is AOL's strategy. AOL distributes thousands of CDs with their software and 6 months of free service. Their correct assumption is that once a customer has an account with their own email, a buddy list and other features, the willingness of customers to switch Internet provides is significantly reduced. Low incremental costs by user registration automation and a great out-of-the-box experience are what make this approach possible. Price sensitivity is can also be related to the number of competing flights and the willingness to pay of passengers utilizing a hub-and-spoke network, relative to those traveling point-to-point, more commonly associated with low cost carriers(Shefer, 2005.)
Priceline utilizes a method that incorporates the basic economics of shopping. The critical point to recognize is that all consumers aren't created equal. Some have strong brand preferences, while some are sensitive to price and care little about brands. A smart merchant would like to sell...