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Price Elasticity

Research on Magnitude and Determinants


Evelyn Friedel

Price is a fundamental profit driver. It is by far the most sensitive profit lever that managers can influence. Very small price changes translate into enormous changes in profit. Price elasticity indicates how sensitively consumers react to price changes. Not only the knowledge about the magnitude of price elasticity, but also the knowledge about the determinants influencing the price reaction is essential. It is crucial for the development of a successful marketing strategy to understand how price elasticities vary with market and product characteristics. Reflecting the academic and managerial need, the objective of the research is to gain a comprehensive understanding in two main areas, the magnitude of price elasticity and the determinants of price elasticity.
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3 Data


The data for this research is derived from two main sources, academic publications (chapter 3.1) and consulting projects (3.2). This enables the author to go deeper into the currently available data set published in academic journals and use this data in new ways such as an analysis of price elasticities by product category across studies and an analysis of brands within the product category.

Adding the consulting projects as a data source expands the available data primarily in two ways. It expands the range of product categories beyond fast moving consumer goods and allows the exploration and analysis of a currently underutilized data source in the academic research. Another main advantage is the fact that the data stems from real consulting projects indicating a high degree of practical relevance, which is always aimed for in further research. Having a more consistent data source and calculation methodology compared to the academic studies, the consulting project data will make comparisons across product categories more accurate.

Academic publications are the first data source. In order to gain a thorough understanding of the currently available academic research data, a comprehensive review was conducted.

The data collection in the academic field was initiated with the publications included in the meta-analysis of Bijmolt/Van Heerde/Pieters (2005, pp. 143-144), as these authors had already identified studies that report price elasticities through an elaborate search strategy. As mentioned before, an observation of price elasticity was included by Bijmolt/Van Heerde/Pieters (2005, p. 142) if...

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