Ever wanted a product so much you paid above and beyond for it?
Would you still have bought that product if the price had gone up by, say, 100%?
When it comes to buying from the digital shelf or brick and mortar stores, price has an undeniable influence on customers’ decisions. If a product is too expensive, they simply won’t pay for it; too little and it could look cheap!
Balancing price elasticity and inelastic demand is crucial if you want your business to succeed. But what are inelastic products, exactly? And why do they have so much appeal?
In this article, we investigate the phenomenon of inelastic products, including why they should matter to brands and how they could help your business grow.
What does price elasticity (and inelasticity) mean?
When we talk about price elasticity, what we’re referring to is the ratio of change in price versus demand.
Say, for instance, that you stock a particular brand of toilet paper. The company decides to increase the price of that toilet paper, so you – naturally – must do the same.
The question is, how much toilet paper are you selling after the price change happens? If it’s similar to beforehand, that product can be described as inelastic, because demand has not been affected by a price change.
What are some examples of inelastic products?
A product can be described as inelastic if it meets any – or all – of the following criteria:
- No close substitutes
- An essential item (i.e., food, fuel or household staples)
- Low starting price
Everyday inelastic products include:
Everyone’s gotta eat! Yes, customers may shop elsewhere if prices get too high, but as the old adage goes, there’s no such thing as a free lunch.
Toiletries, batteries, certain cleaning products – these are all such commonplace items around the house that we often take for granted. If your preferred brand’s price points for these types of products skyrockets, you’ll probably switch, but you’d be hard pressed to give them up altogether. That’s what makes household necessities so inelastic.
Driving may be a luxury for some, but for others it’s essential. Unless you have other means of transportation nearby, chances are you’ll be willing to pay higher prices for fuel.
Some shoppers count cheaper items among their necessities, by virtue of price points being so low. Introducing an everyday low pricing strategy to your business could cause your products to become inelastic!
One-of-a-kind, limited edition, exclusive – when applied to products, these terms make that item inelastic because of the appeal they create. Mint condition items also command a higher degree of inelasticity.
Calculating inelastic products
You can calculate the inelasticity of a particular product by using this formula:
Product inelasticity = % change in quantity of demand / % change in price
Please remember that no matter how you choose to revise your retail pricing strategies, there’s no such thing as a perfectly inelastic product. All shoppers have an upper spend limit, and going against that could cost your business big time!
However, if you think there’s potential for leveraging certain goods within your inventory, we think our software can help.
Identify inelastic products with Magpie DBX
You can use Magpie’s Stock and Delivery monitor to determine whether or not your products are inelastic. This way, you can obtain the necessary data to revise pricing in a way that maximises sales potential.
Looking to keep an eye on pricing, too? The Magpie price tracker will keep tabs on your target market, so you understand how well your products are performing in comparison to competitors.
Think Magpie DBX is a good bet for identifying inelastic products within your inventory? Contact the team to request a free demo!
Further insights from Magpie DBX are available when you follow our social media.