If demand for your product or service changes significantly with slight changes in price, the product category is considered to be elastic with respect to price. If no significant volume changes occur, even with significant price changes, the category is inelastic.
What does price elasticity mean for product pricing? The greater the price elasticity, the closer you should price your products to similar competitive products and vice versa. While your product may be unique, consumers will not pay much of a premium for it if there are similar competitive choices at lower prices.
To find out more about price elasticity in your industry, study secondary
data sources (e.g., A.C. Nielsen Company, Informational Resources, Inc.) for
share and volume results correlated with brand pricing reductions. Talk to trade
and association experts to obtain a feel for pricing elasticity.