Customers and pricing
Price elasticity of demand
How strongly the quantity sold reacts to a change in price.
Facts checked against sources onWhat does Price elasticity of demand mean?
Price elasticity is the percentage change in quantity demanded divided by the percentage change in price. It is usually negative. If a 10% price rise cuts volume by 20%, elasticity is minus 2: demand is elastic, and the price rise lowers revenue. If volume falls only 5%, elasticity is minus 0.5: demand is inelastic, and the price rise raises revenue. Profit also depends on cost, so check contribution, not only revenue.
Where does it come up in case interview prep?
- Macro forces that move casesLesson in Markets and economies: the world a case lives in
- Africa and Latin America for case solversLesson in Regions for case solvers: the big markets of the world
- Market share, growth, and price elasticityLesson in Business basics for non-business learners
- Brands, trust and pricing powerLesson in Why some businesses win: competitive advantage and the economics of strategy
- Positioning and why customers choose: value to the customer and willingness to payLesson in Customers and growth: the economics of marketing
- Brand economics: the price premium and the repeat rateLesson in Customers and growth: the economics of marketing
- Main players, trends 2024 to 2026, regulation and casesLesson in Pharma, biotech and medical devices
- PricingLesson
Related terms
- Value-based pricingSetting the price from what the product is worth to the customer.
- ContributionWhat each sale adds after its own variable cost.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- Market shareOur sales as a share of total market sales.
- Relative market shareOur share divided by the largest competitor's share.
- Penetration rateThe share of potential customers who already use the product.
- Share of walletOur share of what one customer spends in the category.
- ARPU (average revenue per user)Revenue divided by the average number of users.
Learn it in context
See Price elasticity of demand at work in a lesson from Markets and economies: the world a case lives in, with checks as you go.
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