Price Elasticity

Price elasticity is the percent change in quantity of product sold divided by the percent change in price. This number is always a negative number.

• Elasticity is inelastic, i.e. between 0 to -1. You’ll make more money by raising the price
• Elasticity is elastic, i.e., less than -1. You’ll make more money by dropping price.

Factors

There are several

• How loyal is the user to your Owned Identity
• Number of substitutes in the market
• What is your Competitive Differentiation? For example, are there any Owned Network or Switching Costs moats?

Complications

There isn’t a meaningful way to do user research to determine price elasticity. Instead you should do A/B Testing to evaluate how users are responding while keeping in mind:

• Different customer segments can have different price elasticity.
• Seasonality can also influence the results.