Price elasticity of demand is not a pricing strategy, it is an attribute that all product prices embody – only the level of elasticity (or inelasticity) changes. Understanding the price elasticity of demand for your products will help you make better e-commerce pricing decisions.
Quick Overview: What is Price Elasticity of Demand in E-Commerce?
Let’s start with a quick rundown of the basics. In short, price elasticity of demand measures how much an increase or decrease in price will affect the demand for a good.
Most goods traded in the world are elastic – some are library shop more elastic than others, meaning that demand for them will increase when prices fall, or vice versa. On the other hand, some goods are relatively inelastic – meaning that changes in price will
Products with extremely elastic prices tend to be luxury or nice-to-have products where the consumer has many choices and where there are many alternatives at the time of purchase, such as:
- Consumer Electronics : Most types of consumer electronics have multiple options at different price points. If you sell wireless headphones and raise your prices by 20%, you’ll likely see a significant drop in both demand and revenue.
- Clothing. If you sell plain white t-shirts, sweaters, or jeans, consumers have a huge number of substitution options, meaning that in many cases, demand for your white t-shirt is largely dependent on price. Conversely, people tend to pay “extra” for luxury items with added perceived value.
Goods with highly inelastic prices are typically necessities for which there are no substitutes, monopolized goods, or goods with extremely intense competition or low availability, such as:
- Insulin. If a person needs a life-saving drug like insulin, they will have to buy it, regardless of the price. Changes in price will have little effect on demand (until it becomes available).
The benefits of pricing based on price elasticity of demand and the risks of not understanding it
Given all of the above, it is clear that elastic and inelastic products should be treated differently when it comes to pricing. That is why understanding the concept of price elasticity of demand will help you make better and more profitable pricing decisions – regardless of whether your products are elastic or inelastic.
Some of the advantages of pricing according to the price elasticity of demand of a product include:
- Understanding your customer behavior to inform your pricing strategy: Anticipating how consumers will respond to price changes can not only help reduce the risks associated with them, but also reduce the uncertainty in pricing decisions.
- More accurate sales forecasting : Knowing the Strukturēto datu izmantošana — attiecībā optimal price for a product allows you to forecast your sales and even set prices for the future.
- Increased profit margins: If you sell inelastic products, you may have more flexibility when it comes to raising prices because raising prices will not discourage customers. If you sell elastic products, you can increase demand by offering discounts and see an increase in revenue.
In turn, not understanding the
Impact of price elasticity of demand can cause cell p data great harm to your business. A typical scenario is that the price elasticity of demand for a product is not taken into account when making pricing decisions, and products are sold at too low a price, which in turn leads to low profit margins.
