Application of price sensitivity measurement method to assess the acceptance of electricity tariffs

Understanding the way customers respond to price changes is vital for any business. The price sensitivity measurement (PSM) analysis is widely used by marketers and researchers to assess customers´ price sensitivity. This paper applies the concept of PSM analysis to assess electricity consumers´ tariff perceptions, attitude to tariff changes and generally acceptance of tariffs. The method is tested using field survey data obtained from low demand consumers (households and small businesses) in urban and rural areas of Uganda after tariff increase. The results indicate that the new tariff approved by the regulator is within the range of tariffs possibly expected and likely to be accepted by consumers, but higher than the tariffs which consumers consider to be worthy. Also it is realized from the results that in Uganda, tariff expectations of rural consumers are different from the urban counterparts, the former expect lower tariffs with high degree of price sensitivity. Households show a higher degree of price sensitivity than commercial consumers. Conclusively, the information obtained from PSM can be used by utilities to make a preliminary assessment of consumers´ expectations and/or acceptance levels of a certain range of tariffs during tariff review.