Do you always look for low prices when you shop? The answer to this question for many people is likely to be, “It depends.” We present three studies that focus on situations and household resources (income) likely to influence consumers’ price sensitivity, so that we can find out upon what “It depends.”

The first study looks at whether individuals are equally price-sensitive when purchasing products for functional (e.g., purchasing frozen vegetables or paper towels) versus hedonic (e.g., purchasing ice cream or cookies) consumption situations. We argue that consumers seeking to derive fun or relaxation from product use are less motivated to be price sensitive than when shopping for products that provide primarily functional benefits. It is important to point out that we are not examining the hedonic benefits of shopping, as when market mavens draw enjoyment from obtaining deals on well-known brands. Rather, we focus on the usage context or occasion following the purchase. Based upon an analysis of 71 grocery product categories, we find that responses to price cuts (15 percent) are significantly influenced by whether or not the product is likely to be consumed for fun or function. Consumers are less sensitive to price changes for products consumed for hedonic purposes than for functional purposes.

The second study builds upon the first study by examining a cross-section of functional and hedonic goods and services, again anticipating that consumers are less price sensitive for hedonic goods/services than for functional goods/services. We also argue that differences in income effects on price sensitivity may occur due to the intended consumption occasion. We expect high income consumers to be less sensitive to price for hedonic goods than for functional goods. In comparison, budget constraints should force low income consumers to be sensitive to price regardless of the consumption occasion. In other words, we expect no difference in price sensitivity between high and low income consumers for functional goods, but greater price sensitivity by low income consumers than by high income consumers for hedonic goods. The findings confirm our expectations, indicating that budgetary constraints weaken the situational effect for low income households.

The third study adds to the first two studies by also examining the influence of the social context on consumer price sensitivity. Due to social comparison information and reference group influence, we expect consumers to be less concerned about price in social consumption contexts. Consumers purchasing a product in the presence of others may be concerned about what others think about the purchase. In particular, we expect that individuals will be less likely to select the lowest priced alternative in the presence of others due to perceived negative connotations, such as being perceived as “cheap” or unable to afford the higher priced alternatives. In this study, we intercepted consumers following the selection of a frozen pizza in a grocery store, querying as to the intended consumption occasion (functional/hedonic) and social context (nonsocial/social) for the frozen pizza. The results confirmed our earlier findings, showing that shoppers bought more expensive pizzas when consuming for hedonic reasons. Further, individuals intending to consume the pizza with others bought more expensive pizzas—even when controlling for the number of individuals consuming the pizza. These effects are once again attenuated by household income, such that budgetary constraints weaken the situational effects for low income households.

These three studies have important implications for retailers. First, retailers may be overestimating the size of the price sensitive segments. Loosely speaking, our studies indicate that the size of the price sensitive segment for hedonic/social purchases may be half the size of the price sensitive segment for functional/nonsocial purchases. Approximately one-third of respondents in our studies considering hedonic/social consumption situations are price sensitive. Conversely, roughly two-thirds or more of those sampled in our studies were price sensitive when facing functional/nonsocial consumption situations.

Second, the effect of household income on price sensitivity is dependent upon the situation. Income has a limited effect on price sensitivity for functional purchases (e.g., dairy products), but greater effect for hedonic purchases. Yet, even low income consumers are less price sensitive for hedonic purchases than they are for functional purchases. In any case, the situational context appears to explain more of the variance in price sensitivity than does income. Third, given these findings, retailers may be able to gain a competitive advantage by repositioning their goods and services along the lines of the hedonic and social nature of a product or service (i.e., functional to hedonic conversion). Our studies indicate that consumers will seek to minimize individual expenses related to products or services that they perceive to perform functional purposes. Organizations that reposition their product offerings to emphasize more hedonic qualities may be able to (a) attract more buyers at standard prices and/or (b) charge higher prices than competition. For example, at the grocery store level, repackaging or positioning meats, desserts, or other items with “reward yourself” or “party time” themes may appeal to hedonic interests and social situations that reduce price sensitivity for those who buy into the theme.