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Elasticity
Sensitivity of demand to a change in a driver.
Definition
Elasticity is the percent change in sales for a 1 percent change in price or another variable.
How to Calculate
Estimate using regression of log sales on log price or the driver.
Why it Matters
Guides pricing and media decisions.
Key Advantages
Comparable across items and time.
Example
Price elasticity of -2.0 means 1 percent price up, 2 percent sales down.
Use it to
Measure percent change in units for a 1 percent change in price to quantify price response. Set base price and discount depths by elasticity, and vary by SKU, banner, or season where sensitivity differs.
