Which is the most sensitive?

How much impact does a 10 percent price rise have on demand? The question is simple but the answers are complex. In some sectors, the impact on demand of such a price change can reach 50 percent. Such as in housing... In others, fluctuations of 10-15 percent do not affect the consumer at all.

Research shows that consumers’ price sensitivities vary according to sector, even according to category within a sector. The areas where price sensitivities are highest are housing, automobiles, white goods and tobacco products. In the automotive sector, a price rise of 1 percent reduces demand by 2-3 percentage points. In the same way, a price reduction of

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1 percent results in a 2-3 percent increase in demand. For example, a 3 percent increase in Special Consumption Tax results in a 6-9 percent decline in demand on the market. The calculations are clear. For that reason, pricing is very critical in sectors such as ours.”

These words belong to Otokoç General Manager Görgün Özdemir. The data that Özdemir has shared come from a special study by the Automotive Distributors' Association (ODD). The figures clearly demonstrate the relationship between price and demand in the automotive sector.

In fact, members of the automotive sector are not alone when it comes to “price-sensitive customers”. Because the picture is similar in many other sectors. So in which sectors are consumers most sensitive? In which are they more flexible in terms of sensitivity to price? What do companies need to bear in mind when balancing prices and what strategies will enable them to progress?

WHERE ARE THE MOST SENSITIVE CONSUMERS?
Research shows that consumers are particularly sensitive to price for products which have a high per unit price. Price is the most important criterion affecting purchasing
decisions in sectors such as automotives, furniture, white goods and real estate.~

Toyota Türkiye CEO Ali Haydar Bozkurt explains automotive consumers’ price reflexes as follows: “Price is one of the most important factors affecting purchasing decisions in automobiles.

When there are developments which have a negative impact on sales, such as a rapid rise in the exchange rate, the sector cannot immediately pass them onto prices and for this reason a consumer group turns to purchases and brings demand to the fore. It takes 3-4 months for the impact of negative economic developments to be reflected in sales prices.”

Furniture is another of the sensitive sectors... Davut Doğan, board chair of Doğtaş, says: “We are a sector which is very sensitive to price. There is intense competition between brand name furniture firms. If consumers think the price is too high, they will try to find an alternative but similar product from another firm at a more appropriate price.”

IN SOME SECTORS IT MAKES NO DIFFERENCE
But not all sectors and categories are highly sensitive. For example, price has a very low impact on consumer buying decisions for the purchase of essential basic goods or those which are bought only rarely. In addition, brand perceptions are an important factor that can overcome a reluctance to pay a high price.

Ipsos Türkiye CEO Renan Burduroğlu says: “In essential basic goods, a price increase of 10 percent results in a fall of around 4.7 percent in sales. That is to say, we try to fill our stomachs whatever the conditions. But non-essential foodstuffs products such as carbonated drinks, chocolate and potato chips are more sensitive to price.”

Prof. Dr. Ayşegül Özsomer, a member of the teaching staff at Koç University Marketing Department, draws attention to similar points. “Consumers are less price sensitive for products where the unit price is low, such as chewing gum, chocolate biscuits, simit sesame seed rolls, matches or salt, or those that are bought only rarely.~

If consumers think that a product is different and that there is no other comparable product then they are not sensitive to changes in price. Price sensitivity declines for products which are prestigious or status symbols.”

WHAT ARE CONSUMERS' REFLEXES?
So how quickly do consumers respond to price changes and what is their reaction? Experts say that these reactions vary by sector, even by category within a sector. In some sectors, the impact of reactions can be measured in the first weeks, in others over months.

In automotives, the consumer reaction can take 3-4 months. Toyota Türkiye CEO Ali Haydar Bozkurt says: “We adjust our prices monthly, which means that we expect a reaction from customers to any price change in the same month. In general, consumers react more quickly to price changes for low-priced models.”

In shoes, consumer reactions show themselves in the first month. The most keenly felt results come in the first 15 days. For products in high price groups, price sensitivity is greater for both reductions and increases in price. In small household appliances, it takes 45 days for price changes to have an effect on sales.

IS THERE A SENSITIVITY THRESHOLD?
Experts say that there are certain thresholds for consumers’ price sensitivities. In fact, these change according to the sector. In some, a price change of up to 25 percent produces no reaction, while in others there is a reaction even to a 1 percent price rise. For example, in white goods the critical rate is 10 percent.

Ayşegül Özsomer of Koç University says: “In the short-term, small incremental price rises may not result in a decline in demand as consumers may not notice the increases. These are usually price increases of 3-5 percent.”~

Elle Ayakkabı Board Member Suna Akar Çapan says that the sensitivity threshold for customers in shoes is 25 percent. In furniture the threshold varies according to category but is around 5 percent. İstikbal Mobilya General Manager Mesut Yiğit says: “There is less of a reaction from consumers to a price reduction of 10 percent or below, but we obtain quicker, more productive returns for price reductions that are greater than this figure.”