Price elasticity analysis: which products can hold full price
The short answer
A price elasticity analysis divides the percentage change in units sold by the percentage change in price. Results between 0 and -1 mean volume moves less than price, so a product can hold or raise its price without losing much volume. Test it on past price changes and promotions, product by product.
Price increase impact on sales volume, worked through
Why it matters
Every unneeded discount on an inelastic product gives away margin on sales you would have made anyway. Knowing which lines hold volume at full price lets you shrink promotions on them and keep markdown budget for products where price moves demand.
The question to ask
Copy this into Lexi as written.
How to work it out
1. Find clean price changes. List products whose price moved in the last two years, through a list price change or the end of a promotion, with steady stock and nothing else changing at the same time.
2. Calculate the elasticity. To calculate price elasticity of demand, divide the percentage change in weekly units by the percentage change in price, comparing equal periods before and after.
3. Check who kept buying. Split units by full-price regulars, new customers and discount-led buyers, because a line held up by loyal customers absorbs a price rise better than one carried by deal seekers.
What the answer looks like
Illustrative output on sample data
Illustrative example: how Lexi answers this for a footwear retailer. It compares weekly units before and after a promotion ended on two lines, then checks who bought each at full price.
- Leather loafers: price up 16.7%, units down 5%. Elasticity = -0.3. Weekly revenue rose from $36,000 to $39,900.
- Canvas sneakers: price up 20%, units down 30%. Elasticity = -1.5. Weekly revenue fell from $40,000 to $33,600.
What the data shows
The loafers hold volume at full price. The sneakers lose almost a third of their units.
What it means
About 80% of loafer units go to repeat customers who usually pay full price, while most sneaker buyers arrived through promotions.
What to do
Hold the loafers at full price next cycle. Keep promotions on the sneakers, or test a smaller discount on one color first.
This rests on one price change per line, so treat it as a strong signal more than a demand curve. Would you like the same check on your next 20 lines?
Frequently asked questions
What data do I need for a price elasticity analysis?
You need weekly units and the price customers paid, per product, for periods before and after each price change. Stock levels matter too, because a sell-out looks like falling demand. Add customer IDs where you have them, which shows whether the same customers kept buying after the change.
Why do promotion results overstate price elasticity?
Promotions pull purchases forward and draw in buyers who only shop on deals, so the volume spike exaggerates how much price moves demand. Sales often dip after the promotion ends while customers work through what they stocked up on. Measure units for several weeks after the promotion as well as during it.
Is price elasticity in retail the same for every customer?
No. Loyal full-price customers tend to react less to a price rise than shoppers who mostly buy on promotion. A product's overall elasticity blends both groups, so split it by customer segment. A line that looks elastic overall may hold steady with your best customers, which supports a targeted offer over a blanket discount.