What is Price Elasticity of Demand?
Price Elasticity of Demand (PED or Ed) measures how responsive customer demand is to changes in a product’s price, assuming all other factors remain constant.
In simple terms:
If a product’s price decreases, demand typically increases
If a product’s price increases, demand typically decreases
The elasticity value tells you how much demand changes in response
Example: A price elasticity of -2 means a 10% price decrease is expected to drive a 20% increase in sales velocity.
While most brands understand elasticity in traditional retail, ecommerce introduces greater complexity due to factors like transparency, price-matching, and cross-retailer competition. Until now, there has been no reliable tool to measure price elasticity specifically in an ecommerce environment.
How CommerceIQ Calculates Price Elasticity
CommerceIQ leverages large-scale Amazon data to estimate price elasticity at the SKU level. Amazon offers the most comprehensive and scalable dataset for consumer behavior available, which makes it ideal for generating reliable elasticity insights.
Calculation Methodology
The demand model calculates elasticity by isolating the impact of price changes on velocity over the past 6 months, while accounting for:
Seasonality
Stockouts (OOS)
Category-level trends
Competitive dynamics
Tentpole event anomalies (like Prime Day)
Elasticity values typically become available after approximately 90 days of data collection. This may vary based on the pricing volatility of the SKU and the client’s data setup.
How to Interpret Price Elasticity Values
Negative values: A negative sign indicates the standard inverse relationship between price and demand (i.e., as price goes down, demand goes up).
Typical range: Most SKUs fall between 0 and -6. Some rare exceptions may have positive elasticity values (e.g., luxury goods).
NA: If there is no significant historical price movement for a SKU, no elasticity value will be shown.
Confidence Band: Indicates how reliable the elasticity estimate is based on data observed so far. It progresses from LOW to MEDIUM to HIGH as more price-demand patterns are recorded.
Where to Find Price Elasticity in CommerceIQ
You can find Price Elasticity values in the “Price & Promotions” report under the Assortment -> SKUs report.
How to Use Price Elasticity in Your Business
Understanding elasticity enables smarter pricing and promotional decisions. Use elasticity values to:
Forecast the sales impact of pricing changes
Allocate promotional spend more effectively
Avoid unnecessary discounts that won’t drive demand
Simulate potential outcomes of price adjustments in advance
Use the Price Elasticity Simulator template to model the impact of pricing changes.