Price elasticity of demand is an economic measure to understand customer demand sensitivity to price changes. The formal definition is elasticity equals change in quantity divided by change in price.
For example, an elasticity = -2 = 2% divided by -1% arises when a 1% drop in price yields 2% increase in quantity. If elasticity is between 0 and -1, demand is “inelastic” (customer is relatively insensitive to price changes). Whereas, if the elasticity is smaller than -1, demand is “elastic” (customer is relatively sensitive to price changes)
Understanding the price elasticity of your products helps you gain a clear understanding of how your consumers value your product. This is the key to optimizing your revenue. Price Elasticity remains the core concept behind the Price Discovery Engine.
Price Discrimination occurs when different customers are chargeddifferent prices based on their demographic characteristics or past purchase behavior. Using the Price Discovery Engine, the different customers might view different prices for the same product but this happens only for the purpose of collecting their response on different prices.
All customers essentially are charged the same price when they checkout.
The underlying mechanism is a popup which displays the message "Your price has been reduced by $x. Please click OK to continue." On clicking OK, the price changes back to the base price.
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Well, the product selection depends on a variety of factors. Major factors influencing product choice are type of product, positioning, competition and market. We have written an entire blog post to help you out in product selection. Please have a look at here.
Generally speaking, rule of thumb is that you may want to avoid those products for which there is very high competition. That may include the top 10% products which contribute to your total revenue. But all the products beyond that are very likely to be good candidate for price discovery.
If you have a website selling niche products for which there are few substitutes then you should definitely go for price discovery on your products.
Based upon your knowledge of the customers and your product characteristics, you may want to set the price variations.
Absolutely not, we manage all the technical details to give you a hassle-free Pricing Platform that you can use effectively. The Price Discovery Engine has been designed to be used by anyone.
You may also want to browse our UserVoice Page to see the questions that other users have posted.
If you need additional help we are just an email or a phone call away.
To get started, Sign up for the tool using the link provided on our home page.
Configure the Price Discovery Panel by adding the product URLs of the products that you want to start the discovery process.
Currently, visitors browsing from mobile phones and tablets are excluded from the price discovery. All the visitors browsing from mobile/tablet devices are redirected to the base price. We are currently working on including mobile visitors in the price discovery experiment and it will be released soon.
The discovery runs until the results of the price discovery achieve statistical significance. This depends on the traffic to your product page and the number of visitors who add that product to the shopping cart.
You may be able to pause the discovery by signing into Liftsuggest and removing the products from the configuration panel.
No, the report data stays even though the products are removed from the price discovery. This enables you to access historical report data even after the price discovery is over.
Yes, in case if you want to clear excess inventory by reducing prices we recommend running price discovery and not reducing prices randomly. This ensures that you are profitable and ensure inventory churn.
Let us assume that for example the base price of your product is $100 and you want to run price discovery over reduced prices. One way to do this is to configure the base price as $90 and use 5%, 10% and other variations. Hence your visitors will be viewing prices as $94.5 and $99. Depending on the success of the experiment you get a fair idea about which price point gives you the maximum revenue.
Based on the data points, we run the simulation multiple times and record the probability of the increased price experiment outperforming the original. This gives the statistical significance.
For e.g if your base price is $100 & you would like to test what happens at $110, you can carry out discovery that shows a certain amount of visitors, price of $110. This $110 price will be visible on all the pages users is seeing. However, when user clicks on add to cart, he/she will get a message that the prices have dropped back to $100 and visitor can continue from thereon. At every interaction of users after they have committed the price visitors will see re-adjusted price of $100 in all the pages & also in the subsequent visits.
It simply means that the results of the price discovery were not statistically significant. Based on the data points of your visitors response to price changes we examine them for statistical significance. If the results are not statistically significant, you need to readjust the price variations and re-run the discovery or perform the price discovery on another product.
Based on the conversion rates and probability of out performing original, the report chose the winner variation. This indicates that the consumers are price-insensitive in the range (m:n)
You may increase the price of the product or conduct experiment for more price variations.