Price Elasticity

Price Elasticity, more formally known as Price Elasticity of Demand, measures how sensitive customer demand is to changes in price. It evaluates the relationship between price adjustments and the corresponding change in purchasing behavior, helping organizations understand whether customers are likely to buy significantly more or less when prices increase or decrease.

Products with high price elasticity experience substantial changes in demand following relatively small price adjustments. These products are typically characterized by strong competition, numerous substitutes, or discretionary purchasing behavior. Products with low price elasticity experience relatively small changes in demand because customers perceive them as essential, highly differentiated, or difficult to replace.

Price Elasticity is influenced by multiple factors including customer income, competitive intensity, brand strength, switching costs, perceived value, product differentiation, purchasing frequency, and the availability of alternatives. Because these conditions change over time, elasticity should be evaluated continuously rather than treated as a fixed characteristic.