Consumer Behavior: Price Insensitivity
MSRP Unit Vol. MKT. Change in Change in Calculated Calculated Change in MKT
Contrib. Price% Quantity Price Contribution Response %
Elasticity
$5.90 42.1 $84.90 10.9% -23.5 -2.15 -18%
$5.70 41.7 $76.60 7.5% -24.4 -3.27 -26%
$5.60 51.7 $100.1 5.7 -3.0 -0.54 -3%
With price insensitivity and profit maximization in mind, I decided to experiment with prices between the ranges 0 to 10%. The above spreadsheet reflects data when MSRP was elevated higher than 5.29. As we can see, when the price is $5.60 volume sales was 51.7m with a marketing contribution of 100.1m; a slight decrease of 1.6m in volume and 3.3m in marketing contribution as compared to the initial price of $5.29. When price was augmented to $5.60, unit volume further decreased to 41.7m and marketing contribution to $76.60m. However, as the price further increased to $5.90, unit volume was 42.1; 0.4m more than when the price as set at $5.70, and marketing contribution.
On the other hand, bargain prices increased unit volume but marketing contribution was at an all time low. For example, a MSRP of $4.99 yield unit volume/sales of 63.6m, but marketing contribution was only $92.50m. A MSRP of $4.49 increased unit volume/ sales of 65.1, but a market contribution of $88.60, and finally a MSRP of $4.23 yield the most sales of 65.8m, and a marketing contribution of $85m.
Taking everything into account one can assume that consumers are price insensitive when the suggested price is $5.29, since it yield the most profit.
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