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Price Elasticity

Research on Magnitude and Determinants

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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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6 Conclusions

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In this chapter the key findings of the research project are addressed. Then the implications for research, including limitations of the research und suggestions for future research directions are discussed. In the last step implications for management are addressed.

Given the high importance of the price management within the marketing field and the special role of price within the marketing mix, a highly relevant topic both to academic research and managerial practice is addressed in this research (Leone et al. 2012; Monroe 2003; Simon/Fassnacht 2009). Price elasticities are a useful measure to compare price sensitivities across products and markets (Sivakumar 2001, p. 1). Understanding this key figure enhances managerial decision making to set profit-optimal prices. Managers need to be aware that the price has the strongest impact of all marketing variables on profitability (Sethuraman/Tellis/Briesch 2011; Simon/Fassnacht 2009, p. 3). Making the right pricing decisions is the fastest and most effective way to grow profits (Baker/Marn/Zawada 2010, p. 3).

Current research on price elasticities is primarily based on scanner data and fast moving consumer goods (Bijmolt/Van Heerde/Pieters 2005). An assessment of a broader product spectrum is currently lacking. It is not only important to understand the magnitude of the price elasticity but it is also important to understand the determinants of price elasticity. Knowledge about both the magnitude and the determinants allows understanding markets and influencing prices and determinants in a profit-optimal way.

In studying additional products and determinants, the research at hand could expand...

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