Business Problem:
Price elasticity is traditionally how much change in price results in how much change in demand (can change this to another output variable such as add-to-cart or ratings). This is important to understand because those who set product/service prices want to know whether or not their will be allegiance to a product regardless of a price point. And if demand does not change with a price hike or dip, this means that brand affinity and differentiation from competitors has been reached.
Metric to Lift:
Total Gross Merchandise Value (GMV) – the usual company north star metric in e-commerce
Hypothesis:
Following the economic principle: as price goes down demand increases and vice versa.
Analysis Approach:
a. At aggregate level look at most popular fitness tracker qualities. b. Look at price versus demand c. Observe change in price ~ change in demand trend d. See if there are any differences in price elasticity when looking at region P.O.V
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Recommendation:
Keep selling fitness trackers in India. Though looks like Apple, FOSSIL, FitBit and Huawei need to work on their high-end products’ quality to prevent churn.
Conclusion:
Having one single number to say if price is elastic or not for a product is good signal. However, two things to remember is that it is best to do A/B tests to determine what is the best price to set a product. Another thing not to forget with price elasticity is to pair quantitative results with qualitative results such as “Why” are consumers choosing to pay for a product regardless of price changes. Therefore, looking at price elasticity amongst other metrics would be best to determine if a brand has its moat in the market.