How do I calculate the price elasticity of my product in a marketing plan?
| Answer: Price elasticity in marketing is calculated as the absolute value of the ratio of the percentage quantity change and the associated percentage price change. So, to calculate the price elasticity you need to figure out how much of a change (expressed in percentage terms) in what you sell results from a given change in price (also expressed in percentage terms). Often firms can calculate this ratio if they have a history of prices and quantities they've sold. You can also do this through experimentation by changing the price and noting the extent to which quantities increase or decrease. You might find this interesting after calculating the price elasticity of your brand/product. Academic research has shown that the average elasticity at the brand level is about 1.76 but could go as high as 2.5 (after correcting for various biases). In any event, you can see that price changes can have a significant effect on quantity sold. |
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