354 The Marketing Book
Product uniqueness. This is an extremely
important factor affecting price sensitivity and
one that is largely under the firm’s control. If
the product contains important features that
are highly valued by buyers and differentiate
the offering from those of competitors, price
sensitivity is likely to be low. Not only may
customers be willing to pay a price premium
to obtain the unique attributes embedded in
the product, but they may also view
competitive products as less than acceptable
substitutes. Note that ‘unique attributes’ do
not refer to physical characteristics only;
intangible elements (e.g. a solid reputation for
excellent service) may be just as important in
creating a ‘unique value effect’ (Nagle and
Holden, 1995) as tangible elements.
Ease of product comparison. This is a factor that
is particularly important for industrial
purchases and refers to the extent to which
the buyer finds it easy to undertake
comparisons between alternative products
and/or suppliers. When products are difficult
to evaluate before the purchase and the cost
of failure is high (e.g. mainframe computers),
buyers may only consider offers from ‘known’
or ‘approved’ suppliers and thus be willing to
pay a premium for this ‘peace of mind’. In a
consumer goods setting (e.g. with food items),
while comparison of alternative offers is
normally less risky than in industrial contexts,
it has to be borne in mind that ‘a buyer can
compare a new brand with one he regularly
buys only if he is willing to risk the cost of an
unknown purchase only once’ (Nagle, 1987,
p. 61). Interactive decision aids such as online
product comparison matrices and
recommendation agents (Alba et al., 1997;
H ̈aubl and Trifts, 2000) can significantly
enhance the ease with which product
comparisons can be undertaken (e.g. see
GoldFishGuide.com), and hence positively
impact upon price sensitivity.
Importance of purchase. This refers to both the
absoluteamount of what the price of the item
represents and the relativeimportance of the
purchase as a proportion of the buyer’s
income. As the importance of the purchase
increases, so does the degree of price
sensitivity. The more, in absolute terms, a
buyer spends on a product, the greater the
gain from even small reductions in price, and
therefore the greater the incentive to shop
around (e.g. compare the purchase of a
washing machine with that of a new car).
Moreover, the greater the significance of the
purchase in relation to the buyer’s income, the
greater the benefit from finding cheaper
sources of supply (e.g. wealthy families may
spendmoreon food and be lessprice sensitive
than lower-income families, since the latter’s
overall spending on food represents a greater
proportion of their income).
Shared cost. This refers to the proportion of
the total price actuallypaid by the buyer. In
many cases, the buyer does not incur the
entire cost associated with a purchase, as part
(or even all) of the cost is paid by someone
else; obvious examples here are insurance
payments, tax deductions (credits) and
compensation for business travel. The smaller
the proportion of the total price that the
buyer must pay himself/herself, the lower the
price sensitivity for the purchase under
consideration.
Switching costs. This relates to costs that a
buyer must incur beyond the purchase price
when switching from one
product/brand/supplier to another. Sometimes,
a product (e.g. a software program) is used
with assets bought previously (e.g. a mainframe
computer) and which can only be replaced in
the long run. In other instances, there are
‘sunk’ investments in developing relationships
with suppliers, learning to use a particular
product, and establishing routines to handle
transactions efficiently. Under such conditions,
the buyer becomes ‘locked in’ to a particular
product and/or supplier, and price sensitivity
tends to be low due to the high switching
costs involved (at least in the short run). Note
that, as a result of the impact of the Internet
on substitute awareness, price transparency
and ease of product comparisons noted above,