Price Elasticity Case Study

1499 Words3 Pages
bulb-icon

Recommended: Impact of price elasticity of demand on customers essay

Now that you understand how price elasticity works and how it is calculated, it is time to take a closer look to the reasons its important for any business. Price tends to be an important part of consumer shopping decision and companies should understand just how important price is to consumers by calculating price elasticity of demand.

In fact, price elasticity of demand is one of the key metrics for businesses. It can reveal crucial information about the business and its finances, as well as improve the company’s operational strategy.

Firstly, since price elasticity measures the price and product quantity impact, it can reveal to the business how customers will react to price changes. This helps the company answer one of the most important …show more content…

Increased competition in the market could also change customer behaviour towards your products. Crowded market could turn a product more elastic, even if you previously enjoyed inelasticity. Therefore, it is important to pay attention to price elasticity and to regularly check how it is behaving in order to learn more about the current market situation.

Overall, price elasticity can help your marketing strategy with your pricing strategy. Since you’ll understand customer behaviour towards the product and you’ll learn more about the elasticity in relation to competition, you can reflect this with how you market your product. If you have an elastic product, you can try to add more brand building to your product, for instance.

Price elasticity can help you further understand your revenue structure as well. Since you can better understand the relation between demand and price, you can predict sales numbers and adjust pricing strategy. For instance, price elasticity can be great for understanding whether sales will dramatically increase sales or whether a price-hike would significantly impact your revenue stream. If you find out your product is perfectly inelastic, you could increase price without hurting demand. This could provide more revenue for the firm and improve profit

Show More
Related

  • Bun and Ellis Supermarket Analysis of Cost and Prices

    1356 Words  | 3 Pages

    ...y of price change among the different product group, specifically price change for good are more frequently than services. Fourthly, there is a wide range of distribution for the Price change however some of the figures nearly did not change.

    Read More

  • Price Elasticity And Price Elasticity

    1014 Words  | 3 Pages

    Looking at price elasticity we see that the absolute value is greater than one. This means that if the company decided to increase the price of the product there would be a decrease in quantity sold. From the data we can conclude that the price elasticity is elastic. “When demand is elastic—that is Ed >;1—a given percentage increase (decrease) in price is more than offset by a larger percentage decrease (increase) in quantity sold” (McGuigan, Moyer, and Harris, 2014). Since, the product is somewhat elastic an increase in price will result in lower quantity

    Read More

  • Price Discrimination

    1594 Words  | 4 Pages

    Prices are based upon the price elasticity of demand in each given market. In other terms, this means that during ladies night at the local bar, it costs more for men to have a beer than women simply because these bars find it o.k. to charge females less, as a way to draw more females to the business on a specific night.

    Read More

  • Economic Market Conditions: What are Monopoly and Oligopoly

    1401 Words  | 3 Pages

    ...ncompetitive compared to other firms. If firms cut price then they would gain a big increase in market share, however it is unlikely that firms allow this. If this occurs, as a result to that, other firms will follow and cut price as well. Demand will only increase by a small amount: demand is inelastic for a price cut.

    Read More

  • Marketing Mix - H&R Block

    1480 Words  | 3 Pages

    Price is how much to sell your products for. This is based on your cost and product value to potential customers. I believe that price is important and you will definitely attract customers with the lure of cheap prices, especially at Christmas time. How many people just recently woke up at 4 a.m. just to get in line for several hours so they could get a great deal and save a few dollars? I believe that it works to motivate certain customers, but there are still consumers out there who are not interested getting stampeded during a price reduction sale.

    Read More

  • Price Elasticity Of Demand In Economics

    1033 Words  | 3 Pages

    An elastic demand occurred due to an increase in tuition price, which had a significant impact on quantity demand of students enrolled at the University. The price elasticity of demand is 1.2 and implies that for every 1 percentage point tuition price increases, it will lower the quantity demanded of students enrolled at the university by 1.2 percentage point. Although the coefficient of price elasticity of demand or Ed is a negative value, it is important to emphasize on the amount of change by disregarding the minus sign and use an absolute value. Therefore, the absolute value of -1.2 is 1.2, which is greater than 1, reflects an elastic demand and a price elasticity of demand of 1.2. “Whenever the absolute value of demand is greater than one, price decreases will increase revenue.” (Dickinson, 2002, pg. 145). For this reason, Nobody State University need to lower tuition cost and by reducing tuition cost, the demand of students enrolling at Nobody State University increases; which would result in a rise in total

    Read More

  • Barclays Essay

    1627 Words  | 4 Pages

    This mean for the firm is that, if it raises its price and no other producer follow suit than the initiating firm will see a large decrease in quantity demanded i.e. the demand is more elastic, when the firm attempts to increase its price. What if the firms lower its price? The rivals are aware that they could lose substantial market share, if they not follow along and lowers their prices as well. But if everyone lowers its prices, the firm which initiated the price changes will see very little change in the quantity demanded because for most part the customer stays where they

    Read More

  • Elasticity of Demand for Lottery Tickets

    1473 Words  | 3 Pages

    Elasticity is the responsiveness of demand or supply to the changes in prices or income. There are various formulas and guidelines to follow when trying to calculate these responses. For instance, when the percentage of change of the quantity demanded is greater then the percentage change in price, the demand is known to be price elastic. On the other hand, if the percentage change in demand is less than then the percentage change in price; Like that of demand, supply works in a similar way. When the percentage change of quantity supplied is greater than the percentage change in price, supply is know to be elastic. When the percentage change of quantity supplied is less then the percentage change in price, then the supply then demand is known to be price inelastic.

    Read More

  • Consumer Behavior and Marketing

    1824 Words  | 4 Pages

    For commodity goods, consumers are more inelastic to price changes. As commodities are at affordable price, the price differences are rather small. Therefore, lowest price is not a main concern for most consumers.

    Read More

  • What Is The Cross Elasticity Of Demand

    1300 Words  | 3 Pages

    Walmart’s sports car toys price elasticity is 2.25. This shows that it is elastic as a change in price causes a change in quantity demanded that is greater than one percent. As the price decreases, total revenue is expected to increase. This is so because the demand curve slopes downward which means a decrease in price leads to increase quantity purchased and increased receipts. Since the change in quantity was greater than the change in price, the quantity has a stronger effect and will be able to offset the price effect.

    Read More

  • Coca Cola Price Elasticity Of Demand Analysis

    1580 Words  | 4 Pages

    When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price

    Read More

  • The Athletic Footwear Industry: Nike

    1100 Words  | 3 Pages

    This is because there is more than one substitute in the industry which implies that there are many sellers of these products both regionally and globally. Large competitors such as Reebok and Addidas set a range of pricing for the shoes, apparel, and equipment so if Nike raises its prices above the current limits, it is likely that customers will turn to competitors as they look for places where they can get more for their money. This is primarily because of the high demand elasticity. On the other hand, dropping prices is not enough for the available supply as consumers may start to worry about the low price offered for the products since low prices are often associated with low quality items. Also, it is imperative to note that revenue affects price elasticity. Since there is significantly high competition for Nike, prices need to be set to be competitive which limits profits to the price level that the buyers are willing to

    Read More

  • Introduction And Importance Of Elasticity

    860 Words  | 2 Pages

    Beyond prices, the elasticity of a good or service directly affects the customer retention rates of a company. Businesses often strive to sell goods or services that have inelastic demand; doing so means that customers will remain loyal and continue to purchase the good or service even in the face of a price increase.

    Read More

  • Toyota Products, Services, and Prices

    1088 Words  | 3 Pages

    One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.

    Read More

  • Marketing Strategies: An Example Of Marketing Strategy In Rejoice Company

    1504 Words  | 4 Pages

    Price is what a buyer must give up to obtain a product. It is often the most flexible of the four marketing mix element that the price is the quickest element to change. A marketer can raise or lower prices more frequently and easily than they can change other marketing mix

    Read More

More about Price Elasticity Case Study

Open Document