Does your pricing strategy depend on the audience for your hypothetical business?  You discussed a thorough process for looking at price sensitivity, including the customer's ability to pay.

If there is one major competitor in the market, and that leads your competitor has been in the market for a number of years, that becomes your reference point for pricing. As this is a known quantity, you can easily choose the pricing strategy that is most appropriate for your target audience.

This discussion makes perfect sense until you bring Maslow into the conversation.  Can a specific level of motivation be more important than the consideration of a budget and what a consumer can afford?

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The interplay between pricing strategy market competition and consumer behavior including factors such as budget constraints and motivation can be com... View the full answer