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Marketing Academy.

Factors that increase price elasticity

There are factors that predictably describe the tendency of customers to increase their price elasticity. That is, their intention to buy less product when prices rise and more product when they fall.

In general, a brand that is more elastic with respect to price is a brand considered "more commodity" by customers. Therefore more easily replaceable. This is why it is essential to keep this variable under control in order not to end up in a red ocean!

Many consumption tests show that elasticity increases when:

  • The customer is provided with an explicit price reference, i.e. when the brand becomes more or less expensive compared to famous brands, such as the category leader.

  • You increase the price: elasticity is generally higher when you increase the price than when you decrease it.

  • The product has an initial price close to the average rather than the extremes.

  • The brand is small. Big brands can afford larger price increases, while smaller ones have to be very careful because a small increase can make customers much more sensitive and make them buy less.

  • The change in price is explicitly reported. The more this information is communicated, the more customers become aware.

Customers are not very good at remembering absolute prices, but they can easily make relative price comparisons between brands. This is why communicating the discount is important when you lower the price slightly and want to increase sales.


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