Someone is familiar with Economics can only understand what the term price elasticity of demand, effectively means. Thus, beginning with the term ‘price elasticity’ is how you can understand whether customers will buy a product when the price of a product faces an increase or decrease. You need to understand as a retailer to know if the price shift will flare positively or negatively.
You will get a clear idea of how much of an increase in sales your brand will get with a price drop. Just like that, with a slight increase in the price, whether your sales will fall drastically or sustain in the competition is a matter that you will get to know too.
Besides these, you will also get an idea of the demand for the product, which will, to some extent, neutralize the sales from going down with an increase in price. However, you need to understand that we are talking about the product’s price and not a company’s price of the product.
This post will tell you in detail about the factors, which possess an influence on the elasticity of price.
How Available Are Substitutes Of A Type Of Product?
This is the first factor that works behind the elasticity of price. Substances or commodities, which have a lot of substitutes, have an elastic demand. What this means is that suppose, if the price of coffee grows suddenly to a great extent, most of the people will just give up on it for tea. As a result, the market for coffee will fall while the tea industry will see a great boost.
How Is Popular the Product in the Market?
If a particular product is too famous or is an essential part of our daily life, chances are minute for its price to be elastic. If we talk about toothbrushes, we can conclude that they are inelastic as there is no proper substitute for them. So, no matter if their prices go up or down, people will still keep buying them.
One thing that you need should keep in mind that this price elasticity does not relate to the individual prices of an item.
For example, the toothbrush sold by X company can be costly, and people can start buying Y company’s toothbrushes if they cost less.
How Durable Is The Product?
Yes, the durability of the product is also a factor that influences the elasticity of price. A weak or less-durable product will face more replacements than others, which concludes that even if the price of the item increase in the meantime, that will not put any effect on the need to buy it.
Tissue papers or toilet papers are two great examples of this. Even if the cost fluctuates, you will still get tissue papers on restaurant tables or toilet papers in the bathrooms. Therefore, the price change casts no effect on this, so the chances of elasticity are minimum.
Earnings or Income Levels Can Influence Too
This is something that you can understand easily. Elasticity varies from rich to the poor. Salt is a daily-life essential thing, and its price is always kept to a justified limit. Now, if we consider that the price of salt increases suddenly, then you can expect only one thing to happen, i.e. the poor will reduce consumption. The rich will face no problems in buying, and so you can conclude that salt is inelastic to the rich and reverse to the poor.
The proportion of Usage Also Matters as a Factor
If the price of a service or commodity takes a great dig of people’s purses, then you can expect a great impact with a change in the price. With an increasing price, people who use the commodity often will surely start deviating away while the people who are not frequent users will face no problem.
For example, if a person watches three movies from a hall, he will face reducing his habit when the price strikes hard. Whereas, the person who watches one movie once in four months, will face no issue in continuing that even if the price strikes hard.
As a retailer, you need to improve the perception of the people with the price of commodities at your store. There are quite a few ways to do that of which, the best one is to do re-marketing of the item. You can produce ads or keep sending emails to your customers to make them not forget your brand.
The elasticity of price, therefore, varies from commodities to commodities, and a lot of other factors work behind it. To effectively get your sales on track and also not miss out on your company’s profits either, you need to determine what the perfect pricing is of a product.