Price Elasticity
Definition
The degree to which customer demand for a product changes when the price changes. High elasticity means demand drops significantly with price increases. Low elasticity means demand stays stable even as prices rise.
Why it matters
Understanding price elasticity helps founders price more profitably. Inelastic products can absorb price increases without significant volume loss. Elastic products require competitive pricing to sustain demand. Testing elasticity with small price experiments reveals significant revenue opportunities.
Example
A founder raises the price of her digital template pack from £19 to £27. Sales drop from 80 to 74 per month. Revenue rises from £1,520 to £1,998. Demand is relatively inelastic at this price range. She should keep testing higher prices.
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