Setting the right price – elastic v inelastic

Setting the right price for your product or service is hard because it has such a big impact on the company’s bottom line. A huge part of pricing is understanding price elasticity.

Most customers are sensitive to the prices you set.  You need to understand how elastic, or sensitive to price fluctuations, or inelastic, not particularly sensitive about price changes, your products are when deciding how to set or change a price.

A box of cereal with a price tag of $18 is way out of whack with other cereals, and no matter how good it is the company will struggle to sell any volume.

A bottle of ketchup at $18 is way out of whack with other sauces, and it too will struggle to sell any volume, no matter how good it is.

Both of these products may well be the best, gourmet perhaps, but sometimes the price tag is just too great for the item and shoppers may simply choose something cheaper – these products are elastic.

Before you hike your prices up, think about how sensitive your products are to price elasticity and whether it would be a good move for your company overall.

Serious about your success?