Price Elasticity Case Study

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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

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