What Is Price Elasticity?
If you raised your prices by, let's say, 10%, how much less would you sell?
What will happen is tough to predict. Sometimes after increasing your prices, you are still selling the same amount. At other times, the reduction can be significantly higher than your change in prices.
The relationship between the change in demand for a product or service and the change in its price is called price elasticity of demand. Sometimes, you can also read the shortened versions: price elasticity, demand elasticity, or their conceptual cousin price sensitivity.
If your customers do not react to a price increase or reduction, the demand is considered inelastic.
However, if you see a drastic change in buying behavior after a price action, the demand is deemed elastic.
It is not surprising that marketing experts go to great lengths to create inelastic demand for their products. That way, they can raise prices while their customers purchase the same amount of goods and services as before, resulting in higher corporate profits.
How to Make the Demand for Your Products and Services More Inelastic
Although small businesses do not have the marketing budget, resources, or expertise large companies have, there is a lot they can do to make their products and services stand out, thereby making the demand for them more inelastic. Here are a few suggestions:
Share your purpose and philosophy. There is nothing more unique than your personal story, your cause, and your business philosophy. Whether you share them on social media, in a newsletter, or in blog posts, try to integrate them into your marketing strategy.
Build a strong brand. If your customers cannot say what your brand stands for, your messaging and presentation might be inconsistent or confusing. Try to tighten your messaging, aligning it with your purpose and philosophy.
Serve a niche. Instead of being average in many things, try to be excellent in a few. Big-box retailers do not serve niches because there is not enough demand to make it worthwhile for them.
Embrace change. "There is nothing permanent except change," said the famous Greek philosopher Heraclitus 2,600 years ago. In our fast-moving digital world, trends emerge quickly. But these trends can also be replaced by other newer ones almost overnight. While nobody should jump on everything new, it is worth paying attention to what is happening around you. You can assume that your competitors do. Instead of fearing change, embrace it and make trying new things part of your business philosophy.
Final Thought
As a small business entrepreneur, you do not need to calculate the price elasticity for each product mathematically.
However, using price elasticity as a conceptual framework could help you find new ways to make your customers' buying behavior more inelastic to higher prices.
