Price Elasticity of Demand
PED=
% change in Qd
% change in Price
(% change = change/original x 100)
Rules of PED;
1)Always has to be a negative answer
2)Always cover the sign and look at the number
3)Less than 1 = PRICE INELASTIC
4)Greater than 1 = PRICE ELASTIC
Price Elastic Goods
•Luxury goods such as holidays
•Goods which have lots of substitutes/ competitors
Price Inelastic Goods
•Goods such as petrol, which do not have lots of substitutes
•Necessities e.g. bread and milk
•USP
•Brand Loyalty
Pricing Strategies and PED
Remember Total Revenue = Price x Quantity.
Therefore pricing strategies linked to PED are very important. (Remember price skimming/ penetration pricing etc)
Price Elastic Demand;
Inc in price = fall in total revenue
Dec in price = increase in total revenue
Price Inelastic Demand;
Inc in price = increase in total revenue
Dec in price = fall in total revenue
L3
-The elasticity of a product can help managers when making pricing strategies.
-Can help form the overall marketing objectives.
L4 – However
-Remember PED can change over a period of time. It isn't static. Factors such as new competitors entering the market could change the PED over time.
Conclusion
Overall it is a good tool to help companies decide their pricing strategies but companies need to be constatnly monitoring change in demand.
% change in Qd
% change in Price
(% change = change/original x 100)
Rules of PED;
1)Always has to be a negative answer
2)Always cover the sign and look at the number
3)Less than 1 = PRICE INELASTIC
4)Greater than 1 = PRICE ELASTIC
Price Elastic Goods
•Luxury goods such as holidays
•Goods which have lots of substitutes/ competitors
Price Inelastic Goods
•Goods such as petrol, which do not have lots of substitutes
•Necessities e.g. bread and milk
•USP
•Brand Loyalty
Pricing Strategies and PED
Remember Total Revenue = Price x Quantity.
Therefore pricing strategies linked to PED are very important. (Remember price skimming/ penetration pricing etc)
Price Elastic Demand;
Inc in price = fall in total revenue
Dec in price = increase in total revenue
Price Inelastic Demand;
Inc in price = increase in total revenue
Dec in price = fall in total revenue
L3
-The elasticity of a product can help managers when making pricing strategies.
-Can help form the overall marketing objectives.
L4 – However
-Remember PED can change over a period of time. It isn't static. Factors such as new competitors entering the market could change the PED over time.
Conclusion
Overall it is a good tool to help companies decide their pricing strategies but companies need to be constatnly monitoring change in demand.