In a traditional business environment, there are usually two types of pricing strategies for businesses: cost-up strategies and competitive pricing strategies. The cost markup strategy is a way to set the best according to the cost information of the enterprise, and the specific operation is to calculate the full cost of a single product, which includes direct costs (such as raw materials, labor, etc.) and indirect costs (such as management expenses, depreciation expenses, etc.), and then adds the expected profit margin to obtain the selling price of the product. The cost markup strategy is relatively simple to implement and is generally used to calculate the lower bound of product pricing. In a competitive pricing strategy, it is a strategy that is set based on the competitive situation of the market. Enterprises will refer to competitors, compare their product quality and service experience, analyze the advantages and disadvantages, and then formulate their own products. By comparing the pricing of similar competing products to improve competitiveness, enterprises can calculate the pricing range of their own products**. Cost-based pricing does not reflect market demand and consumer perception of value. If consumers are not willing to pay a cost-plus for a product, this pricing can lead to a decline in sales. Second, there is also a problem with pricing based on market competition. This strategy may ignore the needs of consumers, making it impossible to reflect the actual value of the product, and may also lead to vicious competition. Due to some shortcomings in traditional pricing strategies, Price Sensitivity Meter (PSM) based on consumer surveys and data analysis has gradually been favored by enterprises. Let's take a look at how sensitivity analysis works in practice. PSM is a market research method used to study product pricing, with the aim of assessing the degree to which consumers react to changes in products or services**. This approach was proposed in 1976 by Dutch economist Herman Simon and Dutch market researcher Peter van Westendorp. Through a series of questions, businesses can gather information about consumers' perceptions of the product, calculate the minimum and the minimum that consumers are willing to pay, and what consumers think is too expensive or too cheap. PSM can help businesses understand the following aspects:**Receptivity:What is the range of products or services that consumers are willing to pay.
**Sensitivity:What is the extent to which the change has affected consumer demand.
**Elastic:The degree to which consumers' purchasing behavior changes when there is a change. The basic principle of PSM is to understand the degree to which consumers react to changes by asking them a series of questions about ** and analyzing the data. Within the framework of PSM, consumers are usually asked the following four questions: Under what circumstances would you consider a product to be so cheap that you are concerned about its quality?
Under what kind of ** would you think the product is worth the money, **fair?
Under what circumstances, you will feel that the product is starting to become a little expensive, but you may still consider buying?
Under what kind of ** would you think that the product is too expensive for you to accept?
Consumers' answers to these four questions will form a ** interval, which can help enterprises understand consumers' value perception of products or services and set them accordingly. For example, a mobile phone brand company wants to launch a new mobile phone, and after letting users know about the product and experience the prototype, it sends out a questionnaire to ask customers what is the attitude towards 1600 2000 2400 2800 in the four **?
Some of the results of collecting consumer feedback by sending a questionnaire to consumers are as follows:
Data analysis – sensitivity mapsSoftware Tools: SPSSPRO**Data Analysis**Open SPSSPRO, upload data, select**Sensitivity Analysis, drag and drop variables, and click Start Analysis to automatically analyze the results
*The abscissa of the sensitivity (degree) chart is each ** point, and the ordinate is the scale selected by the user (select the user Total Users). 
It is worth noting that the meaning of the four intersections is more important:
The lowest admissible**, PMC: the intersection of "too cheap" and "more expensive", below which it will be too cheap.
The most admissible grid, PME: the intersection of "cheaper" and "too expensive", above this critical point will be too expensive.
Optimal**, opp: the intersection of "too cheap" and "too expensive", it is recommended to be optimal**.
Neither expensive nor cheap**, IPP: the intersection of "cheaper" and "more expensive", ambiguous**.
Intersection solves
By modeling and solving the line segments in the diagram, the results can be obtained as follows:
5. Advantages of sensitivity analysis
PSM has some significant advantages as a market research tool:
Consumer insights.
The PSM approach captures detailed information about consumer sensitivity and acceptance, providing strong support for companies to develop effective pricing strategies.
Flexibility. Using the PSM methodology, it is possible to research and price a specific product, service, or market environment. For example, surveys can be conducted for different consumer groups or different geographic regions.
Practicability. The PSM methodology provides a simple, practical, and actionable framework for collecting and analysing relevant data to make better pricing decisions for businesses.
The PSM approach assumes that consumers are able to accurately express what they think about **. However, in reality, consumers may not always be able to clearly know how much they are willing to pay for a product or service**. And consumers' purchasing decisions are often influenced by other factors, such as product quality, brand, marketing strategy, etc. PSM is not suitable for a new category of products, as consumers may not have a clear pricing reference in mind, so the feedback given varies widely. PSM requires a lot of data collection and complex data analysis, which can take a lot of time and resources.
Compared with traditional pricing strategies, PSM uses market research and consumer subjective evaluation as the starting point to more accurately understand consumers' sensitivity to ** and select the pricing range, so that enterprises can set ** more accurately, so as to maximize profits and optimize product mix. Therefore, PSM can better reflect the actual needs and value perception of consumers, and ultimately provide better value for consumers. Therefore, PSM analysis can help companies better understand the market competition environment, set more appropriate products according to the market environment and consumer preferences, respond more effectively to the market and other market changes, and make more informed pricing decisions. As a result, more and more businesses are using sensitivity analysis to optimize their pricing strategies. The above article is written by spsspro
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