The elasticity of a product refers to the amount of reaction that occurs to a business change. It often refers to the shift in demand for a product based on a variety of changes. The term is most frequently used to refer to changing sales levels based on a change in price. Understanding how pricing, product, promotion and placement strategies can affect sales and profits will help you make the most effective marketing decisions for your business.

Place to Show and Win

Your sales and profits will vary depending on where you sell your product. If you don’t sell online, your sales might decrease because your target audience may not want to leave the house to buy your product. If your customers are older, the opposite can be true. Some distribution channels cost more to use, forcing you to raise prices. While your sales location might not affect sales, higher prices to sell there might change the elasticity of the demand for your product.

The Price Is Right

When you raise prices sales can often fall, depending on your brand. For example, if you compete on affordability, raising prices can send customers to competitors with lower prices. However, setting prices higher can also increase sales. If you’re looking to capture the luxury market or those seeking the highest quality, raising prices might send the message you’re worth more than the competition. If you can project different sales levels based on different prices, you can calculate the gross profit from each. In some cases higher prices result in lower sales while generating higher margins, which produce a higher gross profit.

Promote Demand

How you promote your product can affect demand for it in several ways. Communicating an inconsistent brand message or image can confuse consumers, reducing demand. Getting the endorsement of a reputable spokesperson or organization, on the other hand, can increase consumer confidence and raise demand. Your brand message should target a specific segment of the market based on characteristics such as age, sex, income level and parental status. While this will cause demand to shrink outside your target customer base, it may increase purchase frequency within the group.

Product Planning

Adding more bells and whistles to your product doesn’t necessarily mean customers will find it more attractive. Some might find what you offer too complicated or might not be willing to pay a higher price for extras. Others will want the best product available and will pay more for it. Early adopters will want new products for weeks or months before the mainstream will notice them. During this time you can price your product higher because innovators will pay to be first. After this group has tried what you sell and spread the word to their friends, lowering your price will help increase demand. If you’re a mature business, changing your product can bring back previous customers who have left or increase the spending of current customers.