Before changing a price, estimate how customers will respond. A price cut can increase pack sales while reducing contribution, especially when buyers move from your own larger packs. Start by separating movement along the demand curve from a shift in demand caused by income, competitors or other changes.
Then match the elasticity to the decision: the market, your operator or an individual pack. Use cross-price and income elasticity to anticipate substitution and changes in affordability. The chapter closes with ways to measure the response using your own data.
Put it to work
Choose a past pack price change. Calculate volume and revenue before and after, state the elasticity method, and identify a comparison group. Check payday timing, competitor changes and moves between your own packs before attributing the result to price.
A question to try
How much extra volume would your proposed price change need, and what evidence supports that forecast?
