Price Elasticity
Explore in causation terms:
Key issues:
Elasticity = - dQ/Q/dP/P
Strong relationship between quantity demanded and price →elastic demand
Low to near zero relationship between quantity demanded and price →inelastic demand
See KDC
Elasticity “drivers”
Product/service importance
Product/service uniqueness – functional (ST vs. LT)
– “emotional”
– existence of competition
Degree of “pain”
$ magnitude (RELATIVE)
Who pays?
Mode of payment →extended
↘ mode (cash vs. credit card)
↗ brand
Subtitutes → industry
→ time frame
↘ cross-elasticity
Complements → elasticity
→ cross- elasticity
Competitive response
Customer loyalty
Breakeven (margin) volume
= __X__ x 100% (price cut)
CM-X
Distinguish marginal cost, average cost
Marketing objective is to reduce THE price elasticity of a BRAND!
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