Price Elasticity and the Factors Affecting it

PRICE ELASTICITY

Price elasticity is what we measure the consumers reaction to the change in price of the products.

Price Elasticity = %change in quantity / %change in price

Price Zone:

     Here we are categorizing the pricing of the product according to changes in price. 

If the price on our favorite brand like foods and beverages changes then we can switch brands or can reduce the consumption of the product. But, if an item is of absolute need which can't be replaced then wee have to curtail our use so far. Therefore there are zones of the price elasticity that will help us determine where our product falls.

1. Perfectly Elastic: Here a small changes in the price results a huge change in demand of the products. this zone is home to that product which consumer view as expendables.
2. Relatively Elastic: A small change in price causes significant  changes in demand. Here consumer will see for alternate products to fulfill there needs.
3. Relatively In-elastic: Here change in price cause small changes in demand because people are not willing or able to reduce their consumption.
4. Perfectly In-elastic: These are things that consumer needs and are forced to pay the set price to obtain the product.

Example: If you are having a single cable operator in your area then you are forced to pay the amount set by the provider to have access to the product used for daily need.

Price Elasticity Benefits:

It is used to find the price point of maximum profitability. The point where the increase in price margin are offset by lower demand and sales. This ideal price can be compared with current pricing to see what kind of product are under or over priced.

Calculating the max profit and other pricing strategies guidance for production team and data analytics to work alongside for better alignment of pricing to the current market to identify changes and to optimize product at a segment or location level.