Consumer price sensitivity in retail industry: Latitude of acceptance with heterogeneous demand

摘要

In retail trade, estimating the effects of price changes on demand of products is important in managing business. Discount sales boost demand but the effect will not sustain beyond a level. As such accurate methods are lacking in forecasting the demand escalation due to price reduction. Though price elasticity is a function is an indicator of demand, it is also found that consumers are insensitive to price variations within a certain range. Consumer sensitivity to price variations is seen to be around a price level called reference price or fair price. This article examines the price elasticity with reference to reference price without taking in to account the substitution effect. The price thresholds consists of three regions of price elasticity namely, the base elasticity region called the latitude of acceptance bounded by the thresholds, the region after the gain threshold and the region outside the loss threshold. N the latitude of acceptance he price elasticity is nil or negligible. This study describes a methodology based on consumer utility and consumer heterogeneity to model price threshold. (21 refs.)