Elasticity: Difference between revisions
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{{Running competition}} | {{Running competition}} | ||
== Elasticity == | == Elasticity ==__NOEDITSECTION__ | ||
There is not much knowledge in the market you are active in on price-elasticity. You can check. | There is not much knowledge in the market you are active in on price-elasticity. You can check. | ||
[http://en.wikipedia.org/wiki/Price_elasticity_of_demand this article]. For sure your customers will also have some kind of | [http://en.wikipedia.org/wiki/Price_elasticity_of_demand this article]. For sure your customers will also have some kind of | ||
reaction on prices which will not be linear. But, yes there is elasticity of the price in the market. This means that customers will react on the price in a certain way. They will have their decisions as to buy the product or not depending on the price-change. Generally spoken a higher elasticity would man that customers will react vividly to a price change: if your price goes up with 10%, you might loose more then 10% of your occupancy rate. If you have the price dropped with 10% this will bring you more then 10% extra sales. | reaction on prices which will not be linear. But, yes there is elasticity of the price in the market. This means that customers will react on the price in a certain way. They will have their decisions as to buy the product or not depending on the price-change. Generally spoken a higher elasticity would man that customers will react vividly to a price change: if your price goes up with 10%, you might loose more then 10% of your occupancy rate. If you have the price dropped with 10% this will bring you more then 10% extra sales. | ||
== Pitfalls == | == Pitfalls ==__NOEDITSECTION__ | ||
* Of course the price is not the only item customers decide on | * Of course the price is not the only item customers decide on | ||
* Customers remember the prices of last year as well | * Customers remember the prices of last year as well | ||
Revision as of 14:38, 9 March 2015
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Elasticity
There is not much knowledge in the market you are active in on price-elasticity. You can check. this article. For sure your customers will also have some kind of reaction on prices which will not be linear. But, yes there is elasticity of the price in the market. This means that customers will react on the price in a certain way. They will have their decisions as to buy the product or not depending on the price-change. Generally spoken a higher elasticity would man that customers will react vividly to a price change: if your price goes up with 10%, you might loose more then 10% of your occupancy rate. If you have the price dropped with 10% this will bring you more then 10% extra sales.
Pitfalls
- Of course the price is not the only item customers decide on
- Customers remember the prices of last year as well
- Elasticity is always related to a price range. Breaking the barrier of € 100,- or € 200,- by raising your price from € 98 to € 102,- has much impact(a higher elasticity) then raising the price from € 90 to € 94 (almost the same increase).
- Getting a buyers strike. If the prices go way to low or way to high you will a buyers strike in the market, the elasticity will bring an extreme reaction at a certain point as you (all) might have lost credibility then. This means people will chose for the competition on a higher level and will exchange the hotel plans for a long haul trip or a package deal or even buy new furniture instead of booking. All of the demand side then will shrink.
So you can try to do some calculations on this, this might give you a rough idea and indication.
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