
Measuring Price Elasticity and More - piyushmakhija
http://avc.com/2015/12/measuring-price-elasticity-and-more/
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snowwrestler
I worked for a product strategy consultant and one of his tools was a detailed
chart of the price elasticity of many everyday common objects with very high
market penetration.

Pens, for example, are available at basically every price point, and everyone
uses them. With a lot homework he was able to define the price elasticity
curve for pens. Same with TVs, refrigerators, pads of paper, cars, computers,
washing machines, watches, etc.

The key was to treat these curves as the likely outside edges of the envelope
for new, similar products.

For example, comparing a prospective pen-based computing system to the
elasticity curves for pens, pads of paper, and computers would give us a hint
as to the best possible likely unit sales of a pen computing system, based on
the predicted price.

He also built a combined curve of all products, which defined the outside edge
of price elasticity for the U.S. market in general. We all know that a car
costing $100,000 is not going to sell 50 million units a year in the U.S. But
what is the maximum volume that _any_ product costing $100,000 can expect to
sell? There is an answer! Or at least there was. Sadly, I don't have those
documents handy right now.

Then we could plot individual products into that general elasticity envelope.
Products closer to the edge were incredibly successful; products deeper in the
envelope were not as successful and might be more ripe for competition.

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vm
Super interesting! Can you share the name of the consultant or advise or where
to read a similar report? I'd love to create a similar graph.

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snowwrestler
The name of the company was 4th Wave, it was basically one guy with an EE PhD
and a couple of young helpers (that was me for a couple years).

I don't know if he is still in business; this is still basically the same
crappy website I built for him in 2002:

[http://fourthwave.com/](http://fourthwave.com/)

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dmritard96
We are launching a preorder campaing shortly, and I just don't see how I could
do this without upsetting people. In our press releases, emails and other
places the pricing is clearly laid out. If you are selling a commidity on
amazon, this could work, but I think it is easy to ignore the risk to your
brand/integrity if you sell something to one person for 100 and the next
person gets 60...

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dsugarman
would it be better to start off selling at cost or lowest acceptable margin
and increasing price? having an extended period of time early on with low
sales could be pretty harmful, no?

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spinlock
I don't think the intention is to run this test for "an extended period of
time." You want to gather enough data for it to be significant and then move
on to the next price you're testing.

But, it's a very good question about starting high or low. The common wisdom
is to always price high and then move lower. I've seen this work well for
sales by being able to offer a discount to close a deal. There's also the
perception that expensive = high quality. The only real way to know for sure,
however, would be to duplicate the test and go high-to-low on one and low-to-
high on the other.

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z3t4
You need a lot of volume to measure this.

For a new company/product I think it's better to start low and then increase
the price if/when you get more business.

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frik
Does this work for services too?

Wouldn't you upset long term customers?

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z3t4
You let old customers stay on their current rate. Then they will think they
got a good deal. But of course it works best on products with a lot of growth,
making buyers think it's good to buy in now and not later when it's more
expensive.

