Measuring Price Sensitivity to Unlock Profitability

February 24th, 2025
Ted Benzing | Vice President, Sales
Hero Image: Measuring Price Sensitivity to Unlock Profitability

Setting the right price is one of the most crucial decisions a business can make. A price that’s too high can alienate potential customers, while a price that’s too low may leave revenue on the table. Price Sensitivity Analysis (PSA) provides a data-driven approach to measuring price sensitivity to find that optimal price point, ensuring businesses remain competitive and profitable, especially in today’s inflationary market.

At TRC Insights, we’ve seen firsthand the transformative power of understanding market dynamics through PSA. This crucial process allows businesses to navigate the complex landscape of pricing strategies with confidence.

What Is Price Sensitivity (or Elasticity) Analysis?

Price Sensitivity Analysis, also referred to as Price Elasticity Research, is a research method used to determine how changes in price influence consumer demand. By understanding how price impacts purchase behavior, companies can develop pricing strategies that maximize revenue while aligning with customer expectations.

A key aspect of PSA is identifying pricing thresholds—price points at which consumer interest significantly shifts. These thresholds help businesses avoid pricing a product just above what consumers are willing to pay, reducing the risk of lost sales due to psychological price barriers. With inflation driving up costs, consumers are more sensitive than ever to price adjustments, making PSA an essential tool for strategic pricing.

How Inflation Affects Consumer Price Sensitivity

In today’s economy, we live with the uncertainty of inflation, supply chain shortages, and trade wars. Inflation significantly alters consumer purchasing behavior in the following ways:

  • Increased Price Sensitivity – As the cost of living rises, consumers compare prices more frequently and seek the best value. (Robbins LLP)
  • Shift to Economical Alternatives – Consumers often switch to discount brands or retailers, impacting brand loyalty.
  • Delayed Major Purchases – Inflation leads consumers to postpone significant expenditures, such as home renovations or vehicle purchases.

Because of these factors, brand managers need to be increasingly adaptable to shifting consumer preferences in the area of pricing.

Key Techniques in Price Sensitivity Research

Beyond traditional methods, several advanced techniques provide deeper insights into consumer behavior. Most of these methods involve survey research, and TRC can help with this.

  • Van Westendorp Price Sensitivity Meter – A widely used survey-based method that asks consumers four key questions regarding acceptable, expensive, and bargain pricing. The responses help define an optimal price range where consumers feel comfortable making a purchase. This technique is particularly useful for new product launches where price expectations are unclear.  It is a simple technique and TRC typically recommends further pricing research for optimization.
  • Conjoint Analysis – A sophisticated research method that presents consumers with different product-price-feature combinations and asks them to choose among them. By analyzing these choices, businesses can understand which features justify a higher price and which price points drive the most sales. Conjoint analysis is particularly effective for complex products with multiple differentiating attributes. Designing a well thought-out conjoint study can be challenging. Because of TRC’s vast experience, we bring a high level of expertise to ensure the most actionable outcomes.
  • Gabor-Granger Technique – This method directly asks consumers about their willingness to buy at various price points. The results create a simple demand curve that helps businesses pinpoint the price elasticity of demand and determine the price that maximizes revenue.
  • Price Laddering – A dynamic pricing experiment where price changes are systematically introduced, and real-world consumer behavior is tracked. This technique helps businesses identify the smallest price increase that significantly impacts demand, making it highly valuable in competitive markets where price optimization is crucial.

Advantages For Price Elasticity Research

Embarking on a price sensitivity journey offers numerous advantages:

  • Optimized Pricing Strategies: Navigate the sweet spot between affordability for consumers and profitability for your business.
  • Enhanced Understanding of Consumer Behavior: Gain clear insights into how price changes impact customer demand and preference.
  • Competitive Edge: Stay ahead by understanding the pricing landscape and positioning your product effectively.
  • New product launches or entering new markets.

Price Sensitivity in Action: The Beverage Pricing Threshold Example

Demonstrating price sensitivity (or elasticity) to increase profitability, shows a range of profitable prices

Consider a beverage company launching a premium, plant-based energy drink. Initial market research suggests that consumers value sustainability and organic ingredients but remain highly price-sensitive compared to traditional energy drinks. Using a Van Westendorp Price Sensitivity Meter, the company surveys potential buyers and determines that:

  • Prices below $2.50 are perceived as too cheap, making consumers question product quality.
  • Prices above $4.50 are seen as too expensive, reducing purchase intent.
  • The optimal price range is between $3.00 and $4.00, with $3.79 emerging as the best balance between perceived value and affordability.

To refine pricing further, the company uses Conjoint Analysis to assess which product attributes—such as organic certification, caffeine content, or eco-friendly packaging—justify a premium price. The findings reveal that customers are willing to pay up to 15% more for an organic certification but are less influenced by sustainable packaging.

Finally, the company tests real-world purchasing behavior with Price Laddering, adjusting pricing in select markets. Sales data confirms that demand drops significantly when the price exceeds $3.99, validating the earlier findings. By strategically setting the price at $3.79, the company maximizes consumer appeal while maintaining profitability.

Make Data-Driven Pricing Decisions with TRC Insights

At TRC Insights, we specialize in uncovering pricing insights that drive business success. Whether you’re refining existing pricing or launching a new product, our expertise in pricing research ensures you make informed, strategic decisions.

To adapt to inflation-induced shifts in consumer behavior, businesses should:

  • Analyze Pricing Models Regularly – Frequently measure price sensitivity using the latest data to reflect current market conditions and consumer sentiment.
  • Enhance Value Propositions – Clearly communicate the unique value and benefits of products to justify pricing, especially when increases are necessary.
  • Monitor Competitor Pricing – Stay informed about competitors’ pricing strategies to ensure offerings remain attractive and competitive.

Connect with us today to discover the optimal pricing strategy for your business and turn market insights into profitability.

Ted Benzing | Vice President, Sales

Ted Benzing has spent more than 20 years helping brands make smarter, more confident decisions through marketing research — with a particular passion for pricing.

Throughout his career, Ted has worked closely with clients across a wide range of industries to help them answer some of the trickiest questions in business: What should we charge? How will our customers respond to a price change? Where is the sweet spot between profitability and demand? He approaches each engagement with genuine curiosity, a deep respect for the data, and a commitment to making sure the research actually informs the decision.

One of the things clients appreciate most about working with Ted is that he doesn’t believe in a one-size-fits-all approach. He draws on a broad toolkit of proven pricing methodologies and takes care to match the right method to each client’s specific situation, business context, and budget.

Ted’s academic foundation runs deep. He earned his MBA from the A.C. Nielsen Center for Marketing Research at the University of Wisconsin-Madison, one of the most respected programs in marketing research analytics, and holds a BBA in Accounting from the University of Iowa’s Tippie College of Business. That combination of research training and financial grounding gives him a well-rounded perspective on pricing that is both analytically sound and commercially pragmatic.

Outside of his client work, Ted has a genuine love of teaching. He spent over a decade as a professor at West Chester University and Villanova University, where he taught marketing research, business statistics, and digital marketing to both undergraduate students and working professionals. That experience shows in the way he communicates: he has a knack for taking complex statistical concepts and explaining them in plain language that resonates with leadership teams, brand managers, and insights directors alike.

Ted is also a regular contributor to the broader research community, writing about topics like monadic split-cell design, MaxDiff integration in pricing, shrinkflation and premiumization strategy, and how to avoid common pitfalls in pricing research design. It’s a reflection of who he is: someone who genuinely enjoys sharing knowledge and helping others think more clearly about difficult problems.

Whether you’re facing a high-stakes pricing decision, launching a new product, or simply trying to get a clearer read on what your customers will pay, Ted brings the experience, the methodology, and the collaborative spirit to help you get to a confident answer.

Outside of work, Ted’s #1 role is being a dad to three amazing boys (and his dog). Ted has no shortage of hobbies—swimming, cold plunges, snowboarding, tennis, golf, yoga, nutrition, and traveling, especially to US and Canadian beaches, all enjoyed with his wonderful family.

A lifelong Philadelphia-area resident, with some brief stops in other US cities, Ted is a passionate Eagles and Phillies fan. He’s happy to talk sports, research, or both.

Education: MBA in Marketing Insights and Analytics – University of Wisconsin-Madison; BBA in Accounting, Minor in Health Promotion – University of Iowa, Tippie College of Business

Ted’s LinkedIn profile.

Read Ted’s contribution to TRC Blog.

Contact Ted about your pricing challenge.