What type of analysis would you use to evaluate the potential effects of pricing changes on customer demand?

Sensitivity analysis is utilized to evaluate the potential effects of pricing changes on customer demand because it involves examining how variations in one or more input variables, such as price, impact the outcome, which, in this case, is demand. By changing the price in a model and observing how demand responds, facility managers can gain insights into the pricing elasticity and understand whether an increase or decrease in price will lead to an increase or decrease in customer demand.

This approach allows decision-makers to see a range of possible outcomes based on different pricing strategies, helping to inform strategic decisions. Sensitivity analysis is particularly valuable because it provides a framework for forecasting and assessing risks associated with price changes, enabling better planning and resource allocation. Insights derived from this analysis can guide pricing decisions to maximize revenue while considering customer behavior and market trends.