E-commerce brands use demand elasticity to set prices. Let’s see how.
1. Dynamic Pricing
E-commerce platforms use live data to change prices. They find the sweet spot.
- Elastic Demand: For price-sensitive products, lower prices to sell more.
- Inelastic Demand: For essentials or unique items, raise prices without losing customers.
Example: Amazon changes prices multiple times a day based on demand, competition and customer behavior.
2. Personalized Discounts and Offers
Brands use elasticity to target discounts. They identify which customers are price-sensitive.
- Elastic Goods: Offer discounts to bargain hunters.
- Inelastic Goods: Focus on value added services instead of price cuts.
Example: An online fashion retailer sends personalized discount codes to customers who abandoned their carts.
3. Bundling and Upselling
E-commerce brands bundle products to influence demand elasticity.
- Elastic Goods: Bundle with inelastic items to increase perceived value.
- Inelastic Goods: Upsell to increase revenue without lowering prices.
Example: A tech store bundles a laptop (inelastic) with accessories (elastic) to drive sales.
4. A/B Testing for Pricing
Brands test different prices to measure elasticity. They use data to find the perfect price.
- Elastic Demand: Test lower prices to see if sales go through the roof.
- Inelastic Demand: Test higher prices to see what customers will pay.
Example: An online grocery store tests two price points for organic products to see what’s elastic.
5. Seasonal and Promotional Pricing
E-commerce brands change prices during sales or holidays. They use elasticity to maximize revenue.
- Elastic Demand: Offer deep discounts during peak shopping seasons.
- Inelastic Demand: Use limited time offers to create urgency.
Example: During Black Friday, an electronics retailer slashes prices on elastic items like headphones.
6. Geographic Pricing
Demand elasticity varies by region. Brands price based on local purchasing power and preferences.
- Elastic Demand: Lower prices in price sensitive regions.
- Inelastic Demand: Keep higher prices in affluent areas.
Example: A global fashion brand charges less for the same product in developing countries.
7. Subscription Models
Brands use subscriptions to stabilize demand. They make elastic goods inelastic.* Elastic Demand: Offer subscriptions to lock in customers.
- Inelastic Demand: Use subscriptions to build loyalty and recurring revenue.
Example: A meal kit service offers discounts for annual subscriptions to reduce price sensitivity.
8. Competitor-Based Pricing
E-commerce brands price compare to competitors. They use elasticity to compete.
- Elastic Demand: Match or beat competitors.
- Inelastic Demand: Focus on quality and brand instead of price wars.
Example: An online bookstore prices daily to competitors.
Key Takeaways
- Dynamic Pricing: Adjust prices in real-time based on demand.
- Personalization: Offer discounts to price-sensitive customers.
- Bundling: Combine elastic and inelastic items to boost sales.
- Testing: Use A/B testing to find optimal prices.
- Seasonal Pricing: Leverage holidays and sales events.
- Geographic Pricing: Adapt prices to local markets.
- Subscriptions: Turn elastic goods into inelastic ones.
- Competitor Analysis: Stay competitive without sacrificing margins.