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šŸ“‰ Price cuts ā‰  growth - Part 2

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Price cuts donā€™t fail by chance ā€” they fail by math. Hereā€™s the checkpoint almost everyone forgets. šŸ˜Æ



Two checkpoints


In a previous post (Part 1), we looked at the first checkpoint:


āž”ļø Required volume growth: 15%+ is challenging, 25%+ extremely hardĀ 


But there is also a second checkpoint:


āž”ļø Price elasticity



A simple guide


šŸŸ© Low elasticity (1.0ā€“1.5)

  • Buyers care less about price

  • Stronger differentiation

  • e.g., branded clothing, specialty coffee, toiletries


šŸŸØ Medium elasticity (1.5ā€“2.5)

  • Price matters

  • Still room for differentiation

  • e.g., restaurants, movie theaters, non-luxury apparel


šŸŸ„ High elasticity (2.5+)

  • Low differentiation

  • Small price moves shift demand fast

  • e.g., travel bookings, streaming, electronics


How to use this before cutting prices:Ā 


āž”ļø Estimate elasticity

Use the table to find the elasticity for your revenue target at a given price cut. The formula to construct the table is the following: Ā 


One formula links revenue and price change with elasticity:
e = (r-p)/p/(1+p)
 (r,p: % change of revenue, price - e: elasticity)

āž”ļø Check against your market

If the elasticity is far from how your market behaves, your target is not realistic.


You can use this formula and table to quickly check if your revenue expectations are feasible or far-fetched before applying planned price cuts.



Interested in learning more about AI-Powered Price Optimization and Strategic Forecasting?



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